Eleven states that have presented FY22 budgets are likely to witness a tax revenue shortfall of Rs 1.5 lakh crore this fiscal year. The states’ own tax revenue is expected to slip quite sharply from Rs 9.31 lakh crore (FY21 Budget Estimate) to Rs 7.82 lakh crore (Revised Estimate), translating to a 16 per cent decline over initial projections. The 11 states analysed are Maharashtra, Karnataka, Gujarat, Uttar Pradesh, Rajasthan, Odisha, Kerala, Bihar, Jharkand, Chhattisgarh, and Madhya Pradesh.
Seven of these states, that had projected a revenue surplus for FY21 last year, moved to a deficit due to the revenue shortfall, while the debt to GSDP ratio was exacerbated due to the increase in debt and decline in growth. The highest fall in own tax revenue was witnessed in Kerala at 32.9 per cent, followed by UP (25 per cent), Gujarat (20.6 per cent), and Maharashtra at 18 per cent.
Of the total Rs 9.31 lakh crore initially expected, 42 per cent was to come from GST, 19 per cent from VAT, 13 per cent from excise, and 11 per cent from stamp duty collections. There was a uniform fall in collections on all these fronts by 18 per cent, 13.6 per cent, 14.3 per cent and 23.8 per cent respectively, according to Care Ratings.
However, the projected own tax revenue of these states for the next fiscal year is set at Rs 10.07 lakh crore, a 29 per cent increase over FY21 (RE) and 8.2 per cent over FY21(BE). One of the major concerns arising from the states’ inability to raise revenue has been capex cuts made to meet fiscal deficit targets—made worse due to lockdown-related project delays and labour migration.
While most states have set their FY22 capex at levels closer to FY21, some such as UP, Maharashtra, and Gujarat have seen aggressive increases. Others have tried making up for the lower expenditure in FY21. According to Care, budgetary targets for FY22 were based on a sharp recovery in income taxes and the significant increase in fiscal space provided by the Finance Commission allowing higher borrowings.
Meanwhile, expenditure cuts were a corollary even as the Centre afforded more space for states to run higher deficits. The fiscal also saw revenue shortfalls on almost all fronts as consumption was hit, leading to additional pressures on the Centre to compensate states for the GST shortfall.