States see large tax shortfall over initial projections in FY21

NEW DELHI:  States have witnessed a 15-25 per cent lower tax revenue collection in 2020-21 than their initial estimates as strict lockdown in the first quarter of the financial year took a  toll on economic activities. The full year public account numbers of a few states declared recently show that due to financial stress the states have drastically cut down on capital expenditure – spending on creation of assets like roads and other infrastructure – by 25-30 per cent in most cases.

Though, in a couple cases, the cut in infrastructure spending has been over 30 per cent. Punjab, for instance, has cut down on its capex by 56 per cent while Odisha reduced capital expenditure by 31 per cent. The Goods and Services Tax (GST), the main source of tax revenue for the states, has shown similar trends as  tax revenue collections – a shortfall of 15-25 per cent. 

However, Gujarat is an exception. The GST in the state in 2020-21 has been only 53 per cent of the budget estimate. It collected Rs 29,000 crore as GST when compared to Rs 55,000 crore budgeted target. Gujarat’s overall tax collection has been 68 per cent of the budget target. In some cases, like that of Gujarat, Madhya Pradesh and Telangana, the grants from the central government have been more than they had budgeted for, and that helped them tide over the shortfall of 20-25 per cent in tax collection.

“When we looked at the data, it was pretty obvious that grants from the centre and borrowings were the two main saviours for the state governments. Unlike the general perception that the state government will use the ways and means window of the Reserve Bank of India (RBI) to tide over the situation, we have not seen that happening,” said Sunil Kumar Sinha, principal economist, Indian Ratings.

In case of larger states like Gujarat, Karnataka, Tamil Nadu and Rajasthan, the borrowings were higher than the budgeted target. In the case of Rajasthan, the borrowings were almost six times the target. Rajasthan borrowed Rs 60,500 crore against the budget target of Rs 10,500 crore. Tamil Nadu borrowed 55 per cent more than its budgeted target of `59,300 crore, while Karnataka borrowed 38 per cent more than its budget target of Rs 46,300 crore.