If%20you%20feel%20everything%20is%20getting%20more%20expensive%20since%20the%20COVID-19%20pandemic%2C%20you%20are%20right.%20Not%20only%20have%20fruits%2C%20vegetables%2C%20daal%20and%20tea%20become%20more%20expensive%20since%20March%2C%20the%20prices%20of%20petrol%20and%20liquor%20have%20also%20risen.%20In%20fact%2C%20the%20price%20of%20a%20litre%20of%20petrol%20or%20a%20bottle%20of%20whiskey%20has%20gone%20through%20the%20roof%20in%20some%20states.%20Faced%20with%20the%20twin%20disaster%20of%20falling%20revenues%20and%20surging%20expenditures%20due%20to%20COVID-19%20pandemic%2C%20state%20governments%20have%20hiked%20duties%20on%20petrol/diesel%20and%20liquor%20by%20astronomical%20amounts.%20Petroleum%20sales%20alone%20account%20for%20anywhere%20up%20to%20a%20third%20of%20states%u2019%20total%20own%20tax%20revenue.%20%26nbsp%3B

A%20report%20by%20the%20Reserve%20Bank%20of%20India%20%28RBI%29%20has%20said%20that%2022%20of%2031%20states/union%20territories%20have%20increased%20duties%20on%20petrol/diesel%20so%20that%20pump%20prices%20are%20up%20by%20Rs%208%20per%20litre%20in%20some%20states.%20And%2025%20states/UTs%20have%20raised%20duties%20on%20liquor%2C%20some%20by%20as%20much%20as%20120%25.%20The%20report%2C%20titled%20%u2018State%20Finances%3A%20A%20Study%20of%20Budgets%202020-21%u2019%2C%20noted%20that%20anticipating%20recovery%20of%20economic%20activity%20in%202020-21%20from%20a%20slump%20in%20the%20previous%20year%2C%20state%20governments%20had%20initially%20budgeted%20for%20higher%20tax%20revenue%20collection%20this%20year%2C%20with%20broad-based%20increases%20in%20all%20tax%20components.%20But%20as%20is%20clear%20now%2C%20developments%20in%20the%20first%20half%20of%20the%20year%20%28April-September%29%20have%20completely%20belied%20these%20expectations.

Put%20simply%2C%20state%20governments%u2019%20finances%20are%20in%20dangerous%20territory%2C%20because%20of%20falling%20revenues%2C%20increased%20expenditure%20and%20a%20very%20public%20spat%20with%20the%20Centre%20over%20the%20divisible%20pool%20%28the%20share%20from%20central%20taxes%20each%20state%20is%20entitled%20to%29%20in%20this%20enormously%20tough%20year.%20The%20money%20from%20this%20divisible%20pool%20accounts%20for%20at%20least%20a%20fourth%20of%20states%u2019%20total%20revenues.%20So%2C%20with%20almost%20all%20income%20streams%20now%20in%20doubt%2C%20raising%20duties%20on%20petrol%20and%20liquor%20was%20perhaps%20a%20necessity.

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%u201CIt%20is%20increasingly%20certain%20that%20the%20slump%20in%20economic%20activity%20due%20to%20COVID-19%20led%20lockdown%20will%20adversely%20impact%20states%u2019%20revenue%20collections%2C%u201D%20the%20RBI%20said.%20For%202020-21%2C%20states%20had%20budgeted%20their%20consolidated%20gross%20fiscal%20deficit%20%28GFD%29%20at%202.8%25%20of%20GDP.%20But%20the%20COVID-19%20pandemic%20may%20alter%20budget%20estimates%20significantly%2C%20eroding%20the%20gains%20of%20consolidation%20secured%20in%20the%20preceding%20three%20years%20%28this%20refers%20to%20states%20adhering%20to%20the%20target%20of%20keeping%20their%20GFD%20below%20the%203%25%20level%29.%20The%20RBI%20said%20that%20while%20the%20average%20GFD%20for%20states%20that%20presented%20their%20budgets%20before%20the%20outbreak%20of%20COVID-19%20was%202.4%25%20of%20GSDP%2C%20the%20average%20for%20budgets%20presented%20post-lockdown%20was%20nearly%20double%20at%204.6%25.

States%20earn%20maximum%20tax%20revenue%20under%20two%20heads%3A%20a%29%20commodities%20and%20services%20and%20b%29%20stamp%20duties%20on%20property%20sale/purchase.%20The%20first%20stream%20has%20been%20impacted%20the%20most%20and%20this%20is%20clear%20from%20the%20sharp%20fall%20in%20SGST%20%28State%20GST%29%20in%20the%20April-June%20quarter%20%28Q1%29.%20SGST%20declined%20by%20over%2047%25%20during%20this%20quarter%20and%20the%20decline%20was%20sharper%20than%20the%20overall%20GST%20decline.%20In%20Q2%2C%20the%20decline%20was%20slower%20at%206.4%25.%20Stamp%20duty%20collection%20for%20states%20also%20fell%20alarmingly.

While%20the%20revenue%20impact%20of%20the%20pandemic%20is%20unprecedented%20for%20states%u2019%20finances%2C%20it%20is%20obvious%20that%20they%20will%20now%20try%20to%20postpone%20capital%20spending%20they%20had%20planned%20while%20preparing%20their%20Budget%20for%202020-21.%20Capital%20expenditure%20usually%20encompasses%20states%u2019%20spending%20on%20creating%20schools%2C%20hospitals%2C%20roads%20and%20other%20large%20infrastructure%20projects.%20In%20any%20case%2C%20capital%20spending%20in%20India%20is%20not%20completely%20executed%20in%20most%20years%2C%20often%20falling%20short%20of%20the%20budgeted%20targets.%20In%202019-20%20too%2C%20states%20had%20not%20spent%20their%20budgeted%20capex%20amounts%2C%20with%20total%20capex%20falling%20even%20below%202018-19%20levels.

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The%20pandemic%20havoc%20could%20also%20mean%20states%u2019%20indebtedness%20will%20rise%20this%20fiscal.%20The%20RBI%20report%20noted%20that%20the%20debt-GSDP%20ratio%20is%20expected%20to%20increase%20for%2013%20states%20and%20for%2019%20states%2C%20this%20ratio%20is%20expected%20to%20exceed%2025%25%20in%202020-21%2C%20becoming%20another%20reason%20for%20states%20to%20curtail%20capex.

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