May 08, 2020

Relax FRBM target for states to fight COVID-19

In the Financial Express, Prakhar Misra and Sharmadha Srinivasan discuss the financial struggles that Indian states face as a result of the economic damage due to Covid-19. They recommend a set of actions to provide them with more resources.


Excerpts below:

"The Covid-19 pandemic has made two things clear: The economy will take a huge hit by the time the crisis is over, and the crisis is not ending anytime soon. While some economic recovery will take place in the next 6-8 months, governments will have to move mountains to return to pre-Covid levels of economic growth. State governments will have to raise finances through innovative mechanisms to tide over this crisis. This will require additional measures—from relaxation of the Fiscal Responsibility and Budget Management (FRBM) Act norms and buying of state bonds by RBI to the possibility of introducing a state cess for tackling Covid-19.


Even though within limits, these numbers indicate that Maharashtra is not prepared to deal with the sharp drop in economic performance that Covid-19 has brought about. And, this is the dire situation of one of the best-performing states. States’ revenues are more susceptible to the crisis, as these are usually taxes on fuel, stamp duty, and liquor. For instance, stamp duty collections have already plummeted by over 40% in Mumbai during the lockdown period."


Read full article here

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