The states are having a tough time in tackling the COVID-19 pandemic, especially financially.
The Centre needs to support States financially, for them to efficiently fight the virus.
What is the States' financial scenario?
The States' main own revenue sources that account for half their total revenues are mainly from -
liquor sales
stamp duty from property transactions
sales tax on petroleum products
All these are collapsed now due to the COVID-19-induced lockdown, affecting hugely the State finances.
However, their expenditure such as on interest payments, social sector schemes, and staff salaries remains unchanged.
They are also now called upon to spend more on their health infrastructure and on COVID-19 measures.
In desperation, Tamil Nadu, Karnataka and Maharashtra commenced liquor sales, with outlets breaking all physical distancing norms.
Some States have gone ahead and cut salaries of their employees and pension benefits to rein in expenses.
What is demanded of the Centre now?
Funding support from the Centre and relaxation in borrowing rules by the RBI are crucial interventions now.
The Centre is itself not in a comfortable place financially.
But it at least has the means to replenish its finances through conventional and unconventional means.
For instance, it appropriated almost all of the benefit of falling oil prices through increase in duties.
It recently announced an increase in its borrowing by half for this fiscal.
The burden is on the Centre to find the resources to immediately release the dues of the States.
It must also reimburse the states for their COVID-19-related expenses.
It could consider relaxing the fiscal deficit levels of the States from the current 3% level to at least 4.5%, just as it should relax its own level too.
The States should at least be able to borrow more.
The Centre should also give States the freedom to restart economic activity based on their own assessment.
Greater leeway in restarting economic activity will relieve some of the financial stress, not just on the States but also on the Centre.
