States trim capital expenditure, vaccine adds to burden

The only way to fix this is to have a centralised vaccine procurement policy, the member suggested.

Published: 25th May 2021 08:21 AM  |   Last Updated: 25th May 2021 09:36 AM   |  A+A-

coronavirus, syringe, covid, vaccine

(Express Illustrations)

Express News Service

NEW DELHI: High market borrowing and sharp revenue decline due to the pandemic are forcing many states to cut capital expenditure, as they are struggling to foot the cost of the vaccine amid widening fiscal deficit.“Many states, including Uttar Pradesh, Maharashtra, Madhya Pradesh, Karnataka, Telangana and Orissa, are reducing capital expenditure by about 25-30%. If states have to incur the vaccine cost also, they would have to cut corners, which means lowering their capex,” a senior member of Prime Minister’s Economic Advisory Council (PMEAC) said.

The only way to fix this is to have a centralised vaccine procurement policy, the member suggested. “State capex fall will not help the economy. Market borrowing has also cost in terms of interest burden. With GST shortfall to continue this year, this is not a good scenario. Till we are able to vaccinate all, the cost of the pandemic for the economy will continue to remain high, keeping recovery uncertain,” the member said.According to estimates, the total vaccination cost is Rs 3.7 lakh crore for states at the highest vaccine price. This is large given the budgeted capital expenditure of states.

“If we map this scenario analysis with the budgeted FY22 total expenditure of 20 major states at the highest price point, the vaccine procurement is 16% of the total expenditure for Bihar and 12% for states like Uttar Pradesh and Jharkhand,” Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India said in a recent report.

An analysis of the states’ finances suggests that since this year, too, they may have to borrow, they are cautious in raising money from the market. Also the increase in proceeds from cesses and surcharges from 3% of gross tax revenue in 2000-01 to 23.5% in 2020-21 has reduced the divisible pool and brought down the effective devolution share to about 30% of gross tax revenue. 

26% more market borrowing in FY21
In FY21, 28 states and 2 UTs raised a total of Rs 7.98 lakh crore via market borrowings, 26% higher than the borrowings of Rs 6.35 lakh crore in FY20

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