The government of India adopted a counter-cyclical fiscal policy which included tax cuts and increases in expenditures during the global financial crisis of 2008 (De, 2012; 14th FC Report). The government undertook such policy to revive the economy from a downturn. The impact of global financial crisis was almost negligible on the economic growth in India but it deteriorated the fiscal parameters of the Union government as a result of expansionary policies. The fiscal deficit of the Union government which met the fiscal targets of Fiscal Responsibility and Budget Management (FRBM) during 2007-08 (2.5 %), exceeded the 3 per cent limit of GDP and reached 6 per cent in 2008-09 which further increased to 6.5 per cent in 2009-10. The fiscal path of the Union government shows that the FRBM target was achieved only in 2007-08 and it remained above the target level since then. On the other hand, the state finances were not much affected by the crisis and the states continued to follow the fiscal discipline path set by fiscal responsibility legislation (FRL).

A recent study by RBI (2020) shows that the general tendency of the fiscal policy of the state governments is dependent on the actual output and the debt level of the states. The fiscal rules compel the state fiscal policies to be pro-cyclical. A pro-cyclical fiscal policy means an expansionary policy during upturn and a contractionary policy during downturn. When the States' revenue falls due to a fall in output, they need to cut back their expenditure to follow the FRL, which indicates a pro-cyclical policy. In short, pro-cyclical fiscal policy reflects the co-movement of government's revenues and expenditures in the same direction as the output and vice-a versa for a counter-cyclical policy. However, the economic recovery policies are generally based on counter-cyclical policies, which demands for an expansionary fiscal policy.

The unprecedented COVID-19 pandemic has affected the pre-existing declining growth path of the country, further leading to a negative growth. The Gross Domestic Product (GDP) growth has been declining since 2017-18. It declined from 8.3 per cent in 2016-17 to 7 per cent in 2017-18 to 6.1 per cent in 2018-19 to 4.2 per cent during 2019-20 Provisional Estimate (PE) and to -7.8 per cent in 2020-21 Advance Estimate (AE) (MOSPI). The first advance estimates of Gross Value Added (GVA) at basic prices during 2020-21 by economic activity shows a positive growth only in agriculture, forestry, fishing (3.4 %) and electricity, gas and other utility services (2.7%) with negative growth being observed in rest of the economic activities¹  vis-à-vis 2019-20(PE).

COVID-19 has been affecting the financial resources of both Union and State government. Following the affected revenue and the demand of the state government, the borrowing limit of the state government was increased from 3 per cent to 5 per cent of GSDP for 2020-21 (MoF, 2020) . Although the borrowing limit has been extended beyond 3 per cent of GSDP, it is conditional upon various factors like, state governments  need to implement one nation one ration card system, ease of doing business reform, urban local body/utility reforms and power sector reforms. The weightage for carrying out these reforms are 0.25 per cent of GSDP for each component, totalling to 1 per cent of GSDP. "The remaining borrowing limit of 1 percent will be released in two installments of 0.50 percent each - first immediately to all the States as untied, and the second on undertaking at least 3 out of the above named reforms"(MoF, 2020).

Given the revenue loss faced by the states due to COVID-19 pandemic and the conditional borrowing of the states, this article review the fiscal stance of southern states and union government during Apr- Oct 2020 and compares it with the previous period.

Revenue receipts

The pre-dominant feature of Union and state finances during the pandemic has been a continuous negative growth in both tax and non-tax revenue. The figures up to October 2020 shows the persistent negative growth in tax revenue for all the southern states as well as for Union government with Kerala (26.7%), Karnataka(22.3 %) and Tamil Nadu (19.6 %) having a higher negative growth compared to that of Union government (15.8 %). The share in central taxes has been showing an alarming negative growth for all the states with highest decline in Karnataka (40.9 %), Telangana (33.1 %), Kerala (31.3 %), Tamil Nadu (15.7 %) and Andhra Pradesh (13.2 %). Even the positive growth in grants-in-aids in the states is not allowing the states to have a positive growth in the revenue receipts 2 except for Andhra Pradesh (Table 1).

Table 1. Growth in revenue receipts (%)

Description	Revenue Receipts	Tax Revenue	Own Tax Revenue	Non-Tax Revenue	State’s share of  Union Taxes	Grants-in-aid and Contributions
Telangana	-9.8	-12	-8.4	-27	-33.1	16.9
Andhra Pradesh	1.8	-9.9	-9	1.7	-13.2	55
Karnataka	-22.5	-22.3	-18.6	-12.2	-40.9	-25.2
Tamil Nadu	-12.1	-19.6	-20.6	-31.1	-15.7	38
Kerala	-4.1	-26.7	-25.8	-60.5	-31.3	254
Union Government	-23.8	-15.8		-48.2

Source: Computed from monthly indicators, C&AG and Monthly Accounts, CGA

Kerala  registered the  highest negative growth in own tax revenue of 25.8 per cent, followed by Tamil Nadu (20.6%), Karnataka (18.6%), Andhra Pradesh (9 %) and Telangana (8.4%). The components of revenue receipts show almost a similar picture when analysed as per cent of GSDP (Fig.1). The loss in own tax revenue as per cent of GSDP has been highest in Kerala (-1.31 %) followed by Tamil Nadu (1.11 %), Karnataka (1.05 %), Telangana (0.81%) and Andhra Pradesh (0.78%) during 2020 vis-à-vis 2019 (Fig.1).

Fig 1. Comparison of the revenue receipts components % GSDP between 2019 and 2020

Source: Computed from monthly indicators, C&AG

Government expenditure

The growth in total expenditure of the union government of 0.4 per cent shows a growth less than the southern states like, Andhra Pradesh (54.4%), Telangana (7.4%) and Kerala (6.8%). This gets reflected in the growth rate of revenue expenditure of the Union government which amounts to 0.7 per cent, is less than that in Andhra Pradesh (45.6 %), Telangana (10.1%) and Kerala (6.1%). Rest of the southern states, Karnataka and Tamil Nadu, experienced a negative growth in both total as well as in revenue expenditure of the state government (Table 2).

Table 2. Growth in expenditure (%)

Description	Andhra  Pradesh	Karnataka	Kerala	Tamil Nadu	Telangana	Union Government
Revenue Expenditure  of which	45.6	-6.7	6.1	-6.4	10.1	0.7
i) Expenditure on Interest  payment	36.3	19.8	9.4	-5.2	38.5	15.2
ii) Expenditure on  Subsidy	14	NA	217.5	NA	49	-18.2
Capital Expenditure	214.1	4.5	15	-2.4	-9.4	-1.9
Total Expenditure	54.4	-5.1	6.8	-6.1	7.4	0.4

Source: Computed from monthly indicators, C&AG and Monthly Accounts, CGA

Note: NA represents not available

The data up to October 2020 vis-à-vis 2019 shows that the growth in subsidy expenditure of Kerala has been remarkable (217.5%) and unparalled to other southern states including the Central government's spending on subsidies which is observed to be negative (-18.2%) when it should have been the highest. The highest spending on subsidies in Kerala shows its timely response on addressing the distressing effects of the pandemic by providing required social security benefits for protecting the livelihood of the people. The growth in interest payment expenditure shows a lowest growth in Tamil Nadu (-5.2%) and Kerala (9.4%) compared to the highest growth in Telangana (38.5%) and Andhra Pradesh (36.3%).

The fall in government final consumption expenditure in India can also be observed from table A1 given in the appendix. It decreased from 11.8 per cent in 2019-20 to 5.8 per cent in 2020-21.  This is a matter of serious concern and needs special attention. The exports, imports which were previously following a negative growth during 2019-20 have deteriorated further during 2020-21 (Table A1).

 

 

 

Appendix

TableA1. First advance estimates of GDP, 2020-21 and growth rates (at 2011- 12 Prices)

Item			(Rs. Crore)		(%)
					Percentage Change Over Previous Year
SL. No	Domestic Product	2018-19 (A/C)Actuals	2019-20  PE	2020-21  AE	2019-20	2020-21
1	GVA at Basic Prices	12803128	13301120	12339175	3.9	-7.2
2	Net Taxes on Products	1178298	1264831	1100487	7.3	-13
3	GDP (1+2)	13981426	14565951	13439662	4.2	-7.7
4	NDP	12372051	12893977	11888607	4.2	-7.8
	Final Expenditures
5	Private Final Consumption Expenditure (PFCE)	Reference Comptroller and Auditor General of India (2019 to 2020). 'State Accounts: Monthly Key Indicators': https://cag.gov.in/en/state-accounts-report Controller General of Accounts (2019 to 2020). 'Monthly accounts', Ministry of Finance, Government of India:  http://www.cga.nic.in/ De, S. (2012), 'Fiscal Policy in India: Trends and Trajectory'. Department of Economic Affairs, Government of India, January 2012. Government of India(2021).'Press Note on First Advance Estimates of National Income 2020-21', Ministry of Statistics  & Programme Implementation, January 2021. Government of India, (various years).'National Accounts Statistics',  Ministry of Statistics & Programme Implementation. Government of India (2020), 'Public Finance State Division', DoE, Ministry of Finance, May 2020. Reserve Bank of Indi (2020). 'State Finances: A Study of State Budgets ', RBI, Oct 2020: https://www.rbi.org.in/Scripts/AnnualPublications. aspx?head=State%20 Finances %20:%20A%20 Study%20of%20Budgets Reserve Bank of India (RBI) (Various years).'Handbook of Statistics on Indian Economy'.