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Deadly Covid 2.0 has peaked: SBI economists

Expected marginal revenue gain for States is Rs1,131 cr and a shortfall of Rs79,147 crore

States still yet to get Rs. 85k cr GST compensation

States still yet to get Rs. 85k cr GST compensation

Second wave of Covid-19 has been stabilising with declining seven day moving average of daily new cases for the past few days, indicating the peak of the second wave is mostly behind us, SBI economists say. Furthermore, daily recovered cases are now higher than daily new cases and the gap between the two is much higher than what was observed during the first wave peak. The other reason to cheer is the GST revenues which have set a new record at Rs 1.41 lakh crore in April 2021 and Rs 1.03 lakh crore in May 2021. The average SGST collection was Rs 29,137 crore for Apr-May 2021 period. The average IGST collection was Rs 60,840 crore. Ideally 50 per cent of this should be provided to States.

The monthly average cess collection was Rs 9,355 crore. Thus, if we combine all these figures, the average monthly revenue for States would be Rs 68,912 crore for this year. If we calculate the yearly figure on this number, then the overall revenue would be Rs 8.27 lakh crore.

Ecowrap, the research arm of SBI, collected the data for almost all States and found that the combined budgeted SGST and Cess estimates were Rs 7.67 lakh crore. Thus, if the positive trend in GST continues then providing States their due might not be a significant challenge for the Centre. Only a third wave could now force the Centre to borrow on a larger scale to compensate the States. It has constructed three scenarios and it shows a marginal revenue gain of Rs 1131 crore for the States in the best case and a shortfall of Rs 79,147 crore in worst case.

Notwithstanding the cautious approach adopted by Centre, which has said that it could be borrowing Rs 1.58 lakh crore to compensate States, the recent steps taken by Centre will have definitely some impact on its finances.

The extension of Pradhan Mantri GaribKalyan Anna Yojana from July till the end of November 2021 is expected to cost Rs 91,000 crore, while vaccinating 75 per cent of 18+ adults is expected lead to an additional burden of Rs 13851 crore.

However, this number could go up if India enters into vaccine purchase agreements with foreign companies. For now, we have assumed Rs 400 per dose as the vaccination cost. The Centre has again been cautious in budgeting its excise revenue at Rs 3.35 lakh crore. However, if it continues to levy the same taxes as of now based on our assumptions of petrol and diesel consumption, the excise revenue could increase by Rs 76,339 crore from the budgeted estimates.

Thus overall, the Government's finances do not look overstretched as GST collections have continued to maintain pace because of persistent Government efforts in plugging the loopholes and Government had already factored in some of the vaccination cost.

"We expect a fiscal impact of around Rs 28,512 crore currently because of all these measures. While we do not rule out disruption to Government finances in subsequent months as economic activity only picks up modestly, we believe the space for monetary accommodation is over and only a proactive fiscal policy can rekindle animal spirits and growth. Inflation numbers (both WPI and CPI) due to be released on Monday are likely to show a significant uptick just like US inflation numbers," SBI's chief economic advisor, Soumya Kanti Ghosh says.

The RBI will face a multiplicity of challenges to reinvigorate growth and support a stable rupee and a potential inflation uptick that has all the prospects to turn ugly with a marauding global commodity cycle, he added.

Kumud Das
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