Centre releases 6.1K cr to 14 states as post devolution revenue deficit grant

As per the official statement, the grant was released to Andhra Pradesh, Assam, Himachal Pradesh, Kerala, Manipur, Meghalaya, Mizoram, Nagaland, Punjab, Sikkim, Tamil Nadu, Tripura, Uttarakhand and West Bengal.

A similar amount was released as a grant for April-November months of the current financial year.

The Finance Commission offers a mechanism for the Centre to compensate for income loss incurred by states, which is known as post-devolution revenue deficit grant.

On Thursday, Finance Ministry sources also informed Reuters, India’s fiscal deficit for year ending in March is more likely to be over 7% of gross domestic product as revenue collections suffered from a lockdown and restrictions to rein within the spread of COVID-19.

India’s government had projected a fiscal deficit of 3.5% of GDP for the current year last February. It estimated government borrowing of 7.8 trillion rupees, later revised to 12 trillion rupees, to provide relief to millions of individuals and businesses harm by the pandemic.

A fiscal deficit of more than 7% can be higher than some private economists have projected. Many of them forecast an uptick in tax collections in the second half of the fiscal year. But government sources say the uptick won’t be enough to compensate for earlier losses.

“The fiscal deficit will be bigger than what is estimated by some … Our revenue collections suffered due to the complete lockdown in the first three months and that is hard to recover,” stated a source with direct knowledge of finances discussions. “What we’re looking at is a 7% plus.”

Two of the sources stated the income shortfall from tax and divestment of state-run companies could be as much as 7 trillion rupees.

A finance ministry spokesman declined to comment on the matter. The government has yet to release any revised fiscal deficit estimates.