Summary

The finances of Centre and states are caught between plummeting revenue and unavoidable expenditure owing to the Covid-19 pandemic and an expected 9% contraction in the economy.

For states, revenue resources - their own and from the Centre - have come under pressure with lockdowns and subdued economic activity. On the other hand, expenditure profiles remain sticky: committed expenditure (related to salaries, pension and interest costs) is high, while developmental expenditure (such as medical and labour welfare related expenses) is essential to fight the pandemic and take care of livelihoods.

How are states going to make good this gap?

To be sure, the central government's decision to part-fund the Goods and Services Tax (GST) compensation shortfall and increase states borrowing limits provides some cushion. Nevertheless, many states may still struggle to meet their funding requirements within the available limits.

This may, in turn, entail deeper cuts in states' capital outlays and other developmental revenue expenditure. It may also result in higher off-budget borrowings through some innovative transaction structures.

Against this backdrop, CRISIL is organising a webinar titled 'State finances on a bumpy ride' on November 26, 2020, where our experts will present their views on:

• Impact of the pandemic on states revenue deficits
  
• Expanding borrowing and indebtedness levels
  
• Economic recovery of states, based on a few high-frequency indicators
  
• Outlook on capital outlays and increasing off-budget borrowing requirements
  

This will be followed by a panel discussion and a Q&A session.