Relief via 'Ways and Means Advances' to states of little help amid COVID-19 lockdown: Report
It may provide some reprieve, but is not the solution for the shortfall in states' revenue and most states may be able to make payments in April 2020 using reserve funds or enhanced WMA limits.
MUMBAI: Relief given to state governments through Ways and Means Advances (WMA) relaxations is of "little" help, and Himachal Pradesh, Jharkhand, Rajasthan and Uttar Pradesh may face pressures to honour their payment commitments if the COVID-19 lockdown continues beyond May 3, a report said on Monday.
In the report, India Ratings and Research said WMA relief is "too little to help", as it provides additional liquidity of only Rs 19,335 crore.
It may provide some reprieve, but is not the solution for the shortfall in states' revenue and most states may be able to make payments in April 2020 using reserve funds, enhanced WMA limits, and other revenues.
The state governments are facing a "double whammy" in the lockdown, which impacts their cash flows and also results in higher expenditures, it said, calling for more support from the Centre in such cases.
The Centre and RBI have taken a slew of measures to help states, including raising WMA limits to state governments by 60 per cent of their existing limits for FY20 to help them borrow more from the market, increase in the time that a state can be in overdraft, allowing them to raise Rs 3.2 lakh crore in the April-September period and, also advance release of Rs 11,092 crore of central share from the state disaster risk management fund for FY21 and Rs 6,195 crore revenue deficit, it said.
The rating agency said it did an analysis of monthly expenditures of 18 states based on their FY21 budget projections for April 2020 and the liquidity available with them from various sources including consolidated sinking fund (CSF), guarantee redemption fund (GRF), government securities and auction treasury bills (ATBs).
It found a majority fourteen of the states will be able to make payments on their commitments in April 2020.
"However, four states - Himachal Pradesh, Jharkhand, Rajasthan and Uttar Pradesh - despite the support mentioned above, may face pressure in the near-run and may find it difficult to make payments, if the lockdown continues beyond 3 May 2020," it warned.
It can be noted that starting with a three-week lockdown from March 25, the entire country has been under a lockdown to prevent the spread of infections of the dreaded virus.
The Centre has relaxed the lockdown measures in certain unaffected parts to help the economic activity from Monday.
Revenue from own sources for the states has dried up and if the lock down continues, many more states will find it difficult to make payments, it said, pointing out that several states have already deferred a part of salary payments.
"In such a situation, the central government will have to do the heavy lifting of raising money and pass it on to the state governments for expenditure," the agency recommended, acknowledging that the central government is also facing headwinds by way of higher borrowing costs.