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Impact of COVID-19 on Railway’s finances

In light of the COVID-19 pandemic, all passenger trains were suspended till April 14, 2020.  However, goods services have been continuing with trains carrying essential commodities to various parts of the country.   Railways has also made railway parcel vans available for quick mass transportation for e-commerce entities and other customers including state governments to transport certain goods.   These include medical supplies, medical equipment, food, etc. in small parcel sizes.  Besides these, Railways has taken several other actions to provide help during the pandemic. 

Since the travel ban extends from March 23 till April 14, 2020 (and may extend further), it will impact Railways’ finances for both 2019-20 and 2020-21.  In this post, we discuss the situation of Railways’ finances, and what could be the potential impact of the travel ban on Railways’ revenues.  

Impact of the travel ban on Railways’ internal revenue

Railways generates internal revenue primarily from passenger and freight traffic.  In 2018-19 (latest actuals), freight and passenger traffic contributed to about 67% and 27% of the internal revenue respectively.  The remaining is earned from other miscellaneous sources such as parcel service, coaching receipts, and sale of platform tickets.  In 2020-21, Railways expects to earn 65% of its internal revenue from freight and 27% from passenger traffic.  

Passenger traffic:   In 2020-21, Railways expects to earn Rs 61,000 crore from passenger traffic, an increase of 9% over the revised estimates of 2019-20 (Rs 56,000 crore).  

As per numbers provided by the Ministry of Railways, up to February 2020, passenger revenue was approximately Rs 48,801 crore.  This is Rs 7,199 crore less than the 2019-20 revised estimates for passenger revenue, implying that this much amount will have to be generated in March 2020 to meet the revised estimate targets (13% of the year’s target).  However, the average passenger revenue in 2019-20 (for the 11 months) has been around Rs 4,432 crore.  Note that in March 2019 passenger revenue was Rs 4,440 crore.  With passenger travel completely banned since March 23, Railways will fall short of its target for passenger revenue in 2019-20.

As of now, it is unclear when travel across the country will resume to business as usual.  Some states have started extending the lockdown within their state.  In such a situation, the decline in passenger revenue could last longer than these three weeks of lockdown. 

Freight traffic:   In 2020-21, Railways expects to earn Rs 1,47,000 crore from goods traffic, an increase of 9% over the revised estimates of 2019-20 (Rs 1,34,733 crore).   

As per numbers provided by the Ministry of Railways, up to February 2020, freight revenue was approximately Rs 1,08,658 crore.  This is Rs 26,075 crore less than the 2019-20 revised estimates for freight revenue.  This implies that Rs 26,075 crore will have to be generated by freight traffic in March 2020 to meet the revised estimate targets (19% of the year’s target).   However, the average freight revenue in 2019-20 (for the 11 months) has been around Rs 10,029 crore.  Note that in March 2019, freight revenue was Rs 16,721 crore.  

While passenger traffic has been completely banned, freight traffic has been moving.  Transportation of essential goods, and operations of Railways for cargo movement, relief and evacuation and their related operational organisations has been allowed under the lockdown.  Several goods carried by Railways (coal, iron-ore, steel, petroleum products, foodgrains, fertilisers) have been declared to be essential goods.  Railways has also started operating special parcel trains (to carry essential goods, e-commerce goods, etc.) since the lockdown.  These activities will help continue the generation of freight revenue. 

However, some goods that Railways transports, such as cement which contributes to about 8% of Railways’ freight revenue, have not been classified as essential goods.  Railways has also relaxed certain charges levied on freight traffic.  It remains to be seen if Railways will be able to meet its targets for freight revenue.  

Figure 1: Share of freight volume and revenue in 2018-19 (in %)

image

Sources: Expenditure Profile, Union Budget 2020-21; PRS.  

Freight has been cross-subsidising passenger traffic; it may worsen this year

Railways ends up using profits from its freight business to provide for such losses in the passenger segment, and also to manage its overall financial situation.  Such cross-subsidisation has resulted in high freight tariffs.  With the ban on passenger travel and if the lockdown (in some form) were to continue, passenger operations will face more losses.  This may increase the cross-subsidy burden on freight.  Since Railways cannot increase freight charges any further, it is unclear how such cross-subsidisation would work. 

For example, in 2017-18, passenger and other coaching services incurred losses of Rs 37,937 crore, whereas freight operations made a profit of Rs 39,956 crore.   Almost 95% of profit earned from freight operations was utilised to compensate for the loss from passenger and other coaching services.  The total passenger revenue during this period was Rs 46,280 crore.  This implies that losses in the passenger business are about 82% of its revenue.  Therefore, in 2017-18, for every one rupee earned in its passenger business, Indian Railways ended up spending Rs 1.82.  

Railways expenditure 

While the travel ban has meant that Railways cannot run all its services, it still has to incur much of its operating expenditure.  Staff wages and pension have to be paid and these together comprise 66% of the Railways’ revenue expenditure.  Between 2015 and 2020 (budget estimate), Railways’ expenditure on salary has grown at an average annual rate of 13%.  

About 18% of the revenue expenditure is on fuel expenses, but that may see some decline due to a fall in oil prices.  Railways will also have to continue spending on maintenance, safety and depreciation as these are long-term costs that cannot be done away with.  In addition, regular maintenance of rail infrastructure will be necessary for freight operations.  

Revenue Surplus and Operating Ratio could further worsen

Railways’ surplus is calculated as the difference between its total internal revenue and its revenue expenditure (this includes working expenses and appropriation to pension and depreciation funds).  Operating Ratio is the ratio of the working expenditure (expenses arising from day-to-day operations of Railways) to the revenue earned from traffic.  Therefore, a higher ratio indicates a poorer ability to generate a surplus that can be used for capital investments such as laying new lines, or deploying more coaches.  A decline in revenue surplus affects Railways’ ability to invest in its infrastructure.  

In the last decade, Railways has struggled to generate a higher surplus.  Consequently, the Operating Ratio has consistently been higher than 90% (see Figure 2).  In 2018-19, the ratio worsened to 97.3% as compared to the estimated ratio of 92.8%.   The CAG (2019) had noted that if advances for 2018-19 were not included in receipts, the operating ratio for 2017-18 would have been 102.66%.

In 2020-21, Railways expects to generate a surplus of Rs 6,500 crore, and maintain the operating ratio at 96.2%.   With revenue generation getting affected due to the lockdown, this surplus may further decline, and the operating ratio may further worsen.  

Figure 2: Operating Ratio 

image

Note: RE – Revised Estimates, BE – Budget Estimates.
Sources:  Expenditure Profile, Union Budget 2020-21; PRS.  

Other sources of revenue

Besides its own internal resources, Railways has two other primary sources of financing: (i) budgetary support from the central government, and (ii) extra-budgetary resources (primarily borrowings but also includes institutional financing, public-private partnerships, and foreign direct investment).  

Budgetary support from central government:  The central government supports Railways to expand its network and invest in capital expenditure.  In 2020-21, the gross budgetary support from the central government is proposed at Rs 70,250 crore.  This is 3% higher than the revised estimates of 2019-20 (Rs 68,105 crore).  Note that with government revenue also getting affected due to the COVID pandemic, this amount may also change during the course of the year. 

Borrowings:  Railways mostly borrows funds through the Indian Railways Finance Corporation (IRFC).  IRFC borrows funds from the market (through taxable and tax-free bond issuances, term loans from banks and financial institutions), and then follows a leasing model to finance the rolling stock assets and project assets of Indian Railways.

In the past few years, Railways’ borrowings have increased sharply to bridge the gap between the available resources and expenditure.  Earlier, majority of the Railways’ capital expenditure used to be met from the budgetary support from central government.  In 2015-16, this trend changed with the majority of Railways’ capital expenditure being met through extra budgetary resources (EBR).   In 2020-21, Rs 83,292 crore is estimated to be raised through EBR, which is marginally higher than the revised estimates of 2019-20 (Rs 83,247 crore).  

Note that both these sources are primarily used to fund Railways’ capital expenditure.  Some part of the support from central government is used to reimburse Railways for the operating losses made on strategic lines, and for the operational cost of e-ticketing to IRCTC (Rs 2,216 crore as per budget estimates of 2020-21).  

If Railways’ revenue receipts decline this year, it may require additional support from the central government to finance its revenue expenditure, or finance it through its borrowings.  However, an increased reliance on borrowings could further exacerbate the financial situation of Railways.  In the last few years, there has been a decline in the growth of both rail-based freight and passenger traffic (see Figure 3) and this has affected Railways’ earnings from its core business.  A decline in growth of revenue will affect the transporter’s ability to pay off its debt in the future. 

Figure 3: Volume growth for freight and passenger (year-on-year)

 

Note: RE – Revised Estimates; BE – Budget Estimates. 
Sources:  Expenditure Profile, Union Budget 2020-21; PRS.  

Social service by Railways

Besides running freight trains, Railways has also been carrying out several other functions, to help deal with the pandemic.  For example, Railways’ manufacturing capacity is being harnessed to help deal with COVID-19.  Production facilities available with Railways are being used to manufacture items like PPE gear.  Railways has also been exploring how to use its existing manufacturing facilities to produce simple beds, medical trolleys, and ventilators.  Railways has also started providing bulk cooked food to needy people at places where IRCTC base kitchens are located.   The transporter also opened up its hospitals for COVID patients.  

As on April 6, 2,500 rail coaches had been converted as isolation coaches.  On average, 375 coaches are being converted in a day, across 133 locations in the country. 

Considering that railways functions as a commercial department under the central government, the question is whether Railways should bear these social costs.  The NITI Aayog (2016) had noted that there is a lack of clarity on the social and commercial objectives of Railways.  It may be argued that such services could be considered as a public good during a pandemic.  However, the question is who should bear the financial burden of providing such services?  Should it be Indian Railways, or should the central or state government provide this amount through an explicit subsidy?  

For details on the number of daily COVID cases in the country and across states, please see here.  For details on the major COVID related notifications released by the centre and the states, please see here.  For a detailed analysis of the Railways’ functioning and finances, please see here, and to understand this year’s Railways budget numbers, see here.

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Does changing MP salaries and MPLAD entitlements raise resources to fight COVID-19?

This week, the centre issued two Ordinances to amend: (i) the Salary, Allowances, and Pension of Members of Parliament Act, 1954 to reduce the salaries of MPs by 30% for a period of one year, and (ii) the Salaries and Allowances of Ministers Act, 1952, to reduce the sumptuary allowance of Ministers by 30% for one year.  The government also amended the rules notified under the 1954 Act to reduce certain allowances of MPs for one year, and suspended the MPLAD Scheme for two years.  These changes are being made to supplement the financial resources of the centre to tackle the COVID-19 pandemic.  These amendments raise larger questions on the effect they have on the capacity of the state to fight the pandemic, and the way in which salaries of MPs should be determined.

Overview of Amendments

The 1954 Act lays out the salary and various allowances that an MP is entitled to during their term in Parliament and also provides pension to former MPs.  MPs receive a salary of one lakh rupees per month, along with compensation for official expenses through various allowances.  These include a daily allowance for attending Parliament, constituency allowance and office expense allowance.  Under the first Ordinance, the salaries of MPs are being reduced by 30%.  Further, the constituency allowance and office expense allowance are being reduced by Rs 21,000 and Rs 6,000, respectively. 

The 1952 Act regulates the salaries and other allowances of Ministers (including the Prime Minister).  The Act provides for the payment of a monthly sumptuary allowance (for expenditure incurred in entertaining visitors) at different rates to the Prime Minister, Cabinet Ministers, Ministers of State, and Deputy Ministers.  The second Ordinance is reducing the sumptuary allowances of Ministers by 30%. 

Note that the 1952 Act pegs the salaries, and daily and constituency allowances of Ministers to the rates specified for an MP under the 1954 Act.  Similar provisions apply to presiding officers of both Houses (other than Chairman of Rajya Sabha) who are regulated by a different Act.  Therefore, the amendments to the salaries and constituency allowance of MPs will also apply to Ministers, Speaker and Deputy Speaker of Lok Sabha, and Deputy Chairman of Rajya Sabha.  The salary of the Chairman of Rajya Sabha will continue to remain unaffected by the Ordinances (Rs 4 lakh per month). 

Further, since 1993, MPs can also identify projects and sanction certain funds every year for public works in their constituencies under the Members of Parliament and Local Area Development (MPLAD) Scheme, 1993.  Since 2011-12, each MP can spend up to Rs five crore per year under the scheme.  The Union Cabinet has approved the suspension of the MPLAD Scheme for two years.  Table 1 below compares the changes in salaries, allowances and MPLAD entitlements of MPs.

Table 1: Comparison of changes in the salaries, allowances and MPLAD entitlements of MPs

Feature

Previous entitlement (in Rs per month)

New entitlement (in Rs per month)

Changes for the period of

Salary

 1,00,000

70,000

One year

Constituency allowance

70,000

49,000

One year

Office allowance

60,000

54,000

One year

Of which

Office expenses

20,000

14,000

-

 

Secretarial assistance

40,000

40,000

-

Sumptuary allowance of Prime Minister

3,000

2,100

One year

Sumptuary allowance of Cabinet Ministers

2,000

1,400

One year

Sumptuary allowance of Ministers of State

1,000

700

One year

Sumptuary allowance of Deputy Ministers

600

420

One year

Funds under MPLAD Scheme

5 crore

NIL

Two years

Sources: 2020 Ordinances; Members of Parliament (Constituency Allowance) Amendment Rules, 2020; Members of Parliament (Office Expense Allowance) Amendment Rules, 2020; “Cabinet approves Non-operation of MPLADs for two years (2020-21 and 2021-22) for managing COVID 19”, Press Information Bureau, Cabinet, April 6, 2020; PRS.

Effect of amendments on resources to fight COVID-19

The proposed reduction to the salaries and allowances of MPs and Ministers amounts to savings of around Rs 55 crore, and the suspension of the MPLAD scheme is expected to save Rs 7800 crore.  These measures comprise 0.03% and 4.5% respectively, of the estimated amount required to fight the immediate economic distress unleashed due to COVID.  Government has estimated Rs 1.7 lakh crore as the requirement for COVID relief measures under the Pradhan Mantri Garib Kalyan Yojana.  Therefore, such measures to decrease MP salaries and allowances toward increasing the pool of funds for fighting the pandemic are likely to have an almost negligible impact.

How might MP salaries be set

Each MP is required to represent the interests of his constituents, formulate legislation on important national matters, hold the government accountable, and ensure efficient allocation of public resources.  The salary and office allowance of an MP must be assessed in light of the responsibilities expected to be discharged by them. Ensuring MPs are reasonably compensated in terms of salaries allows MPs the means to be able to discharge their duties devotedly, enables them to make decisions in an independent manner and guarantees that citizens from all walks of life can stand a chance of running for Parliament.  The question remains – who decides what is reasonable compensation for MPs. 

Currently, MPs in India decide their own salaries which is passed in the form of an Act of Parliament.  MPs setting their own pay leads to a conflict of interest.  A way to resolve this is by setting up an independent commission to determine that salaries of MPs.  This is a practice followed in certain democracies, such as New Zealand and United Kingdom.  In some other countries, it is pegged to annual wage rate index such as Canada.  Table 2 lists various methods used in some other countries to set salaries for legislators.

Table 2: Methods for setting salaries in different democracies

Countries

Process of determining salary of legislators

India

Parliament decides by passing an Act.

Australia

Remuneration Tribunal decides the salary.  This is revised annually.

New Zealand

Remuneration Authority decides the salary.  This is revised annually.

UK

Independent Parliamentary Standards Authority sets the pay annually as per the changes in average earnings in the public sector given by the Office for National Statistics.

Canada

Member’s pay is adjusted each year to federal government’s annual wage rate index.

Germany

Based on income of a judge of the highest federal court and adjusted annually by the Parliament. 

Sources: Various government websites of respective countries; PRS.

India has experience with appointing independent commissions to examine the emoluments of government officials.  The central government periodically sets up pay commissions to review and recommend changes to the wage structure of government employees with a view to attract talent to government services.  The latest Central Pay Commission was constituted in 2014 to decides the emoluments of central government employees, armed forces personnel, employees of statutory bodies, and officers and employees of the Supreme Court.  Typically, the Commissions have been chaired by a former Judge of the Supreme Court, and have included members representing government service and independent experts.

Suspending  MPLADS

In contrast to these amendments, the suspension of the MPLAD Scheme is a positive step.   

The MPLAD Scheme (MPLADS) was introduced in December 1993 to enable legislators to address local developmental problems for their constituents.  MPLADS allows legislators to earmark up to five crore rupees every year on public works projects in their constituency and recommend these projects to the district authorities for implementation.  Typically, funds under the MPLADS are expended on construction or installation of public facilities (such as school buildings, roads, and electrical facilities), supply of equipment (such as, computers in educational institutions) and sanitation projects. 

In 2010, a five-judge bench of the Supreme Court decided a challenge to the constitutionality of the MPLADS.  It was argued that MPLADS violates the concept of separation of powers between the executive and the legislature since it provides the MP with executive powers on local public works.  The Court ruled that there was no violation of the principle of separation of powers because the role of an MP in this case is recommendatory and the actual work is carried out by the local authorities. 

However, the Scheme has undermined the role of an MP as a national-level policy maker.  The role of an MP is to determine whether government’s budgetary allocations across development priorities are appropriate and once the money is sanctioned by Parliament is it being spent in an efficient and efficacious manner.  However, focus on local administration-level issues, such as development of roads or sanitation projects, obscures the role of the MP in conducting oversight.  Another fall out of having MPs responsible for MPLADS is that it skews the expectations of citizens have of their MPs – holding them accountable for resolving local development issues rather than broader policy and legislative decision making. The suspension of MPLADs will allow for MPs to focus on their role in Parliament.  

The Ordinance route

Through these Ordinances, the executive has amended the salaries and allowances of MPs and Ministers.  In principle, Parliament is discharged with law-making powers.  In exceptional circumstances, the Constitution permits the executive to make laws through Ordinances if Parliament is not in session and immediate action is required.  The two Ordinances will have to be ratified by Parliament within six weeks of its sitting in order to continue to have the force of law.  Interestingly, India is one of the few countries, apart from Bangladesh and Pakistan, that vests the executive with authority to make laws, even if temporary in nature. 

The Ordinance amending the salaries of MPs also raises a question on whether it is appropriate that the executive has the power to amend the emoluments of MPs – how would this affect the independence of the legislature which is tasked with holding the executive accountable.

Central government’s response to the COVID-19 pandemic (Jan 2020 - Apr 7, 2020)

On January 17, 2020, the Ministry of Health and Family Welfare acknowledged the emergence of a new coronavirus (COVID-19) that was spreading across China.[1]  On March 11, 2020, the World Health Organisation declared the COVID-19 disease to be a global pandemic. As of April 7, 2020, there are 4,421 confirmed cases of COVID-19 in India.[2]   Of these, 326 patients have been cured/discharged and 114 have died.1   

As the spread increased and more information about the virus was uncovered, the central government announced several policy decisions to contain it.  Further, measures were also announced to support citizens and businesses who were affected by such containment measures.  In this blog post, we summarise some of the key measures taken by the central government in this regard as of April 7. 

 image

Source: Ministry of Health and Family Welfare, PRS.

Movement restrictions

21-day lockdown in the country

The Ministry of Home Affairs announced a 21-day lockdown to contain the spread of COVID-19 from March 25, 2020 to April 14, 2020.[3]   During the lockdown, all establishments, other than those providing essential goods and services, and those involved in agricultural operations, have been closed.   Essential goods include items such as food, medicine, and electricity.  Essential services include banking services, telecommunications, and pharmaceuticals.  Transportation of all goods (essential or non-essential) will remain functional. [4],[5],[6],[7],[8]   

All state/UT governments have been directed to: (i) arrange for shelter and food for the needy, including migrant workers, (ii) quarantine migrant workers for at least 14 days, (iii) direct employers to pay wages during the lockdown, and (iv) ensure landlords do not demand rent from workers and students for one month.[9]  

Financial aid

Pradhan Mantri Garib Kalyan Yojana to provide relief against COVID-19

On March 26, the Finance Minister announced a relief package of 1.7 lakh crore rupees under the Pradhan Mantri Garib Kalyan Yojana for the poor.[10]  Key features of the package are:10,[11]

  • Insurance cover of Rs 50 lakh will be provided to health workers (such as doctors, nurses, paramedics and ASHA workers) who are treating patients of COVID-19.[12]

  • Five kilograms of wheat or rice and one kilogram of preferred pulses will be provided for free every month to poor families for the next three months.  

  • Women account holders under the Pradhan Mantri Jan Dhan Yojana will get Rs 500 per month between April and June, and poor families will be given three free gas cylinders over the next three months.  

Extension and relaxation in payment of taxes

The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 was promulgated on March 31, 2020.10  The Ordinance provides certain relaxations, such as extension of time limits and waivers of penalties, in relation to specified laws.  These include the Income Tax Act, 1961 (IT Act), some Finance Acts, and the Prohibition of Benami Property Transactions Act, 1988.  Key provisions under the Ordinance include:

  • Extension of time limits:   The Ordinance extends the time limits (for the period between March 20, 2020 to June 29, 2020) for compliance of certain actions such as: (i) issuing notifications, completing proceedings, and passing orders by authorities and tribunals, (ii) filing of appeals, replies, and applications, and furnishing documents, and (iii) making any investment or payment for claiming deductions or allowances under the IT Act.  

  • Interest and penalty:  Payment of any tax, made before June 30, 2020 (or any further date specified by the government), will not be liable for prosecution or penalty.  Also, the rate of interest payable for the delay in payment will not exceed 0.75% per month.

  • Donations to PM CARES Fund:  Donations made by a person to the PM CARES Fund will be eligible for 100% tax deduction.

  • GST compliances:  The central government may notify extension to time limits for various compliances under the Central Goods and Services Tax Act, 2017.

Measures by RBI to address the financial stress caused by COVID-19

The Reserve Bank of India (RBI) also announced several measures to address the stress in the economy caused by COVID-19.[13],[14],[15]  Key measures are detailed below:

  • Cutting Policy Rates:  The repo rate (the rate at which RBI lends money to banks) was reduced from 5.15% to 4.4%.   The reverse repo rate (the rate at which RBI borrows money from banks) was reduced from 4.9% to 4.0%.  

  • Liquidity management: Measures are being taken to expand liquidity in the market to ensure that financial markets and institutions can function normally.  These measures include the reduction of the Cash Reserve Ratio (CRR) for all banks from 4% to 3% till March 26, 2021.  CRR is the amount of liquid cash that banks have to maintain with the RBI, as a percentage of their total deposits.  These steps are expected to inject total liquidity of Rs 3.74 lakh crore. 

  • Relief to borrowers in repayment of loans:  All banks and financial institutions (including NBFCs) are permitted to grant a moratorium of three months on payment of all term loan instalments (including agricultural, retail and crop loans) and interest on working capital loans (such as overdraft facilities), which are due between March 1, 2020 and May 31, 2020.  

Short term credit to states

The Reserve Bank of India (RBI) has constituted an Advisory Committee to review the Ways and Means Advances (WMA) limits for states and UTs. WMA limits refer to temporary loans given by the RBI to state governments. Until the Committee submits its final recommendations, the WMA limit has been increased by 30% from the existing limit, for all states and UTs. The revised limits will be in force between April 1 and September 30, 2020.[16]

PM CARES Fund 

The central government has set up a national fund to deal with emergencies like the COVID-19 pandemic.  The public charitable trust known as the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) will provide relief to those affected by COVID-19.  The trust is chaired by the Prime Minister and includes members such as the Defence Minister, Home Minister, and Finance Minister.[17]

Donations made by a person to the PM CARES Fund are 100% tax deductible.[18]  Non-residents can also contribute to the Fund through foreign inward remittances.[19] 

Health measures

COVID-19 testing 

Currently, government facilities are offering free of cost diagnosis to all individuals with COVID-19 symptoms.[20]  Further, the government has approved certain private laboratories to test individuals for COVID-19.  The cost of screening in private labs may not exceed Rs 4,500.[21]   As of April 7, there are 136 government testing centres for analysing samples of COVID-19 and 3 additional collection centres.[22]   Further, there were 59 private labs offering testing in 12 states.  These states are Delhi, Maharashtra, Kerala, West Bengal, Uttar Pradesh, Telangana, Tamil Nadu, Odisha, Karnataka, Haryana, Uttarakhand and Gujarat.[23]

The Ministry of Health and Family Welfare has also laid down guidelines for those who may be tested at these laboratories.   These include: (i) symptomatic contacts of those who have tested positive for COVID-19, and (ii) symptomatic persons with a travel history to COVID-19 affected countries, (iii) symptomatic healthcare workers, and (iv) persons with severe respiratory diseases.21

Containment plan for large outbreaks

The Ministry of Health and Family Welfare has created a plan to contain the spread of the COVID-19 disease.  Some of the measures suggested in the plan include:[24] 

  • Geographic quarantine:   This strategy requires the restriction of movement of people to and from a defined geographic area where there is a large outbreak.  

  • Cluster Containment:  This strategy will contain the disease within a defined geographic area by early detection of cases.  Cluster containment will include geographic quarantine, social distancing, testing all suspected cases, and awareness amongst the public. 

Restrictions on export of medicines and medical equipment

The central government placed restrictions on the export of certain medical equipment and medication so as to ensure its availability in India.  For example, the export of ventilators, surgical masks, diagnostic kits, and medications such as paracetamol and hydroxychloroquine is restricted.[25],[26],[27],[28]

Travel restrictions

Domestic and international travel banned; issue of visas suspended

Civil Aviation:  All passenger domestic air travel within the country is banned from March 24 till April 14, 2020.[29],[30]  All international commercial passenger travel has been banned till April 14, 2020 (cargo and certain other flights are exempted).[31]  All existing visas issued to nationals of any country except those issued to diplomats, officials, UN/international organisations, employment and project visas are suspended from March 13 till April 15, 2020.[32] 

Railways:  Indian Railways suspended all passenger trains till April 14, 2020.[33]  Transportation of essential commodities will continue.[34]  Railways has also made parcel vans available for quick transportation for e-commerce companies and other customers including state governments to transport certain goods.   These include medical supplies, medical equipment, food, etc. in small parcel sizes.[35]  

For a detailed summary of the main policy decisions taken by the central government with regard to COVID-19, please see here.

For more information on the spread of COVID-19 and the central and state government response to the pandemic, please see here.


[1] Novel coronavirus outbreak in China, Ministry of Health and Family Welfare, January 17, 2020, https://www.mohfw.gov.in/pdf/TraveladvisorytotravelersvisitingChina17012020.pdf.

[2] Ministry of Health and Family Welfare website, last accessed on March 31, 2020, https://www.mohfw.gov.in/index.html.

[3] Order No. 1-29/2020-PP, National Disaster Management Authority, March 24, 2020, https://mha.gov.in/sites/default/files/ndma%20order%20copy.pdf.

[4] Order No. 40-3/2020-DM-I(A), Ministry of Home Affairs, March 24, 2020, https://mha.gov.in/sites/default/files/MHAorder%20copy.pdf.

[5] “Guidelines on measures to be taken by Ministries/Department of Government of India, State/Union Territory Governments and State/Union Territory Authorities for containment of COVID-19 Epidemic in the Country”, Ministry of Home Affairs, March 24, 2020, https://mha.gov.in/sites/default/files/Guidelines.pdf.

[6] Second Addendum to Order No. 40-3/2020-DM-I(A), Ministry of Home Affairs, March 24, 2020, https://mha.gov.in/sites/default/files/PR_SecondAddendum_27032020.pdf.

[7] “Consolidated Guidelines on the measures to be taken by Ministries/Departments of Government of India, State/Union Territory Governments and State/Union Territory Authorities for containment of COVID-10 Epidemic in the Country, as notified by the Ministry of Home Affairs on 24.03.2020 and further modified on 25.03.2020 and 27.03.2020”, Ministry of Home Affairs, https://mha.gov.in/sites/default/files/PR_ConsolidatedGuidelinesofMHA_28032020.pdf.

[8] D.O. No. 40-3/2020-DM-I(A), Ministry of Home Affairs, March 29, 2020, http://164.100.117.97/WriteReadData/userfiles/3rd%20Addendum%20to%20Lockdown%20Guidelines%20on%20exempted%20Goods%20and%20Services.pdf.

[9] Order No. 40-3/2020-DM-I(A), Ministry of Home Affairs, March 29, 2020, https://mha.gov.in/sites/default/files/MHA%20Order%20restricting%20movement%20of%20migrants%20and%20strict%20enforement%20of%20lockdown%20measures%20-%2029.03.2020.pdf.

[10] “Finance Minister announces Rs 1.70 Lakh Crore relief package under Pradhan Mantri Garib Kalyan Yojana for the poor to help them fight the battle against Corona Virus”, Press Information Bureau, Ministry of Finance, March 26, 2020.

[11] “Monetary and Fiscal policy response by Government of Indian and Regulators”, Department of Economic Affairs, Ministry of Finance, March 27, 2020, https://dea.gov.in/sites/default/files/India%20economic%20policy%20response%20on%20%20COVID%2019%20Fiscal%20and%20Monetary%20as%20on%2027032020.pdf.

[12] “Pradhan Mantri Garib Kalyan Package: Insurance Scheme for Health Workers Fighting COVID-19”, Press Information Bureau, Ministry of Health and Family Welfare, March 29, 2020. 

[13] Seventh Bi-Monthly Policy Statement 2019-20”, Press Release, Reserve Bank of India, March 27, 2020, https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR2129F5E23A447E0F4A00955429716C53F5A2.PDF.

[14] “Statement on Developmental and Regulatory Practices”, Reserve Bank of India, Press Releases, March 27, 2020, https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=49582.

[15] “COVID-19 – Regulatory Package”, Notifications, Reserve Bank of India, March 27, 2020, https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11835.

[16] RBI announces further measures for dealing with the COVID-19 pandemic, Reserve Bank of India, April 1, 2020, https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR2167BA409AC37FA8460497BA0C9B283E5DD9.PDF.

[17] Appeal to generously donate to ‘Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund)’, Press Information Bureau, Prime Minister’s Office, March 28, 2020, https://pib.gov.in/PressReleseDetailm.aspx?PRID=1608851.

[18] The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020, Gazette of India, Ministry of Law and Justice, March 31, 2020, http://www.egazette.nic.in/WriteReadData/2020/218979.pdf.

[19] Rupee Drawing Arrangement – Remittance to the Prime Minister’s Citizen Assistance and Relief in Emergency Situations (PM-CARES) Fund, Reserve Bank of India, April 3, 2020, https://rbidocs.rbi.org.in/rdocs/Notification/PDFs/NOT2087A69F5158C174585A46C69B78BD96DBD.PDF.

[20] Strategy for COVID-19 testing in India, India Council for Medical Research, Ministry of Health and Family Welfare, March 17, 2020, https://www.mohfw.gov.in/pdf/LabTestingAdvisory.pdf.

[21] Guidelines for COVID-19 testing in private laboratories in India, Ministry of Health and Family Welfare, March 21, 2002 https://www.mohfw.gov.in/pdf/NotificationofICMguidelinesforCOVID19testinginprivatelaboratoriesiIndia.pdf.

[22] Government Approved Laboratories by ICMR, Ministry of Health and Family Welfare, April 7, 2020.  https://icmr.nic.in/sites/default/files/upload_documents/Govt_Labs_functional_for_COVID19_testing_05042020.pdf.

[23] Private Approved Laboratories by ICMR, Ministry of Health and Family Welfare, April 7, 2020.  https://icmr.nic.in/sites/default/files/upload_documents/Private_Labs_06042020.pdf

[24] Containment Plan for Large Outbreaks, Ministry of Health and Family Welfare, April 4, 2020, https://www.mohfw.gov.in/pdf/3ContainmentPlanforLargeOutbreaksofCOVID19Final.pdf.

[25] S.O. 1171(E), Amendment in Export Policy of Masks, Ventilators and textile raw material for masks and coveralls, Ministry of Commerce and Industry, March 19, 2020, http://egazette.nic.in/WriteReadData/2020/218857.pdf

[26] S.O. 955(E), Amendment in Export Policy of APIs and formulations made from these APIs, Ministry of Commerce and Industry, March 3, 2020, http://egazette.nic.in/WriteReadData/2020/216551.pdf.

[27] Notification no. 01/2015-2020, Amendment in Export Policy of Hydroxychloroquine, Ministry of Commerce and Industry, April 4, 2020, https://prsindia.org/files/covid19/notifications/1492.IND_Export_Restriction_Hydroxychloroquine_Apr_4.pdf

[28] Notification no. 59/2015-2020, Amendment in Export Policy of Diagnostic Kits, April 4, 2020, https://prsindia.org/files/covid19/notifications/1491.IND_Export_Restriction_Diagnostic_Kits_Apr_4.pdf.

[29] AV. 11011/1/2020-US(AG) Office-MOCA, Ministry of Civil Aviation, March 23, 2020, https://www.civilaviation.gov.in/sites/default/files/Revised-%20COVID-19%20-%20Order%20under%20Section%208B.pdf.

[30] No.4/1/2020-IR, Director General of Civil Aviation, March 27, 2020, https://dgca.gov.in/digigov-portal/Upload?flag=iframeAttachView&attachId=130618666

[31] No.4/1/2020-IR, Director General of Civil Aviation, March 26, 2020, https://dgca.gov.in/digigov-portal/Upload?flag=iframeAttachView&attachId=130618625

[32] No.4/1/2020-IR, Director General of Civil Aviation, January 30 to March 17, 2020, https://dgca.gov.in/digigov-portal/Upload?flag=iframeAttachView&attachId=130617742

[33] “Ministry of Railways extends Cancellation of Passenger Train Services till 2400 hrs of 14th April, 2020”, Press Information Bureau, Ministry of Railways, March 25, 2020. 

[34] “Transportation of essential commodities to various parts of the country by Indian Railways continues at full speed”, Press Information Bureau, Ministry of Railways, March 30, 2020.  

[35] “Indian Railways to run Special Parcel Trains for carriage of essential items in small parcel sizes during the complete lockdown in fight against COVID-19”, Press Information Bureau, Ministry of Railways, March 29, 2020.  

English translation unavailable for .

Recent rise in LPG prices

Last week, oil-marketing companies (or OMCs, such as Indian Oil Corporation Limited and Hindustan Petroleum Corporation Limited) raised the price of domestic LPG in the country. [1]  The price of a domestic cylinder (14.2kg) has increased from Rs 714 in January 2020 to Rs 858.5 in February 2020.  This is a 20% hike in the price of a LPG cylinder.  Note that this is the sixth consecutive month for which LPG prices have been revised upwards.  Figure 1 shows the variation in price of a domestic (non-subsidised) LPG cylinder in Delhi over the last year.

Figure 1: Variation in price of non-subsidised domestic LPG cylinder

 

Sources:  Indian Oil and Corporation Limited; PRS.

How is the price of LPG cylinders determined?

LPG prices are revised every month.  The price is determined by public sector OMCs namely, Indian Oil Corporation Limited, Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited, in line with the changes in the international market prices and other market conditions. [2]  The international market price affects the import parity price of petroleum products (the price that importers pay for import of product at the respective Indian ports).  This includes exchange rate, ocean freight, insurance and customs duty among others.

The Ministry of Petroleum and Natural Gas has stated that the recent hike in the price of LPG cylinder is due to a sharp rise in international LPG prices during January 2020 (from USD 448/Metric Tonne to USD 567/Metric Tonne). [3] 

What is the difference between the price of a subsidised and non-subsidised cylinder?

The price determined by the OMCs reflects the price of a non-subsidised domestic LPG cylinder.  The government modulates the effective price to provide subsidised LPG cylinders to consumers under the 'Pratyaksha Hastaantarit Laabh' direct benefit transfer (or DBT-PAHAL) scheme. [4]   Under the scheme, a consumer (with annual income of up to Rs 10 lakh) can avail DBT cash-subsidy for a LPG cylinder.   The beneficiaries buy LPG cylinders at market rate and subsequently receive subsidy directly in their bank accounts.  

With the recent increase in price of a LPG cylinder, the government has increased the subsidy amount for PAHAL consumers from Rs. 153.86 per cylinder to Rs. 291.48 per cylinder (89% increase).3   This is done to ensure that the subsidized LPG consumers are insulated from the volatility of LPG prices in the international market.  Table 1 shows the amount of subsidy provided by the government for LPG cylinder.  Note that price of a subsidised cylinder has increased from Rs 494 to Rs 567 (14.8%) from February 2019 to February 2020. 

Table 1: Difference between the price of subsidised and non-subsidised LPG cylinder

As on

Non-subsidised cylinder

Subsidised cylinder

Subsidy

February 2018

Rs 736.00

Rs 495.63

Rs 240.37

February 2019

Rs 659.00

Rs 493.53

Rs 165.47

February 2020

Rs 858.50

Rs 567.02

Rs 291.48

Sources: Unstarred Question No.1211, February 13, 2019, Ministry of Petroleum and Natural Gas, Rajya Sabha.
 Note: Prices are at Delhi. 

How many people avail the subsidy on LPG cylinders?

Currently, there are a total of 27.16 crore LPG (domestic) connections in the country.3  Of these, 26.12 crore (94%) consumers are beneficiaries under the PAHAL scheme, and therefore, can avail LPG cylinders at subsidised rates.  Note that, under the scheme, a maximum of 12 subsidised cylinders per year can be availed under one connection.  Further, a household cannot have more than one connection. 

What is the cost of subsidy for the government?

The subsidy on domestic LPG is met through the budgetary grants of the Ministry of Petroleum and Natural Gas.  In 2020-21, the government is estimated to spend Rs 37,256 crore on LPG subsidy.   This includes Rs 35,605 crore for DBT-PAHAL and Rs 1,118 crore for Pradhan Mantri Ujjwala Yojana.  This is an increase of 9.3% from the expenditure in 2019-20 of Rs 34,086 crore (revised estimate).  Note that LPG subsidy constitutes 87% of the Ministry's total budget (Rs 42,901 crore).   

Figure 2 below shows the year-wise expenditure on LPG subsidy, and as a proportion of the total budget of the Ministry from 2015-16 to 2020-21. 

Figure 2: LPG subsidy over the years (2015-16 to 2020-21). 

Sources: Union Budget Documents; PRS.

For more trends and analysis related to the finances of the Ministry of Petroleum and Natural Gas, see  here

[1] "LPG price hiked by Rs 144.5 per cylinder", Economic Times, February 12, 2020,  https://economictimes.indiatimes.com/industry/energy/oil-gas/lpg-price-hiked-by-rs-144-5-per-cylinder/articleshow/74096745.cms.

[2] Frequently Asked Questions (FAQ), Petroleum Planning and Analysis Cell,  https://www.ppac.gov.in/content/137_3_Faq.aspx.

[3] "LPG Price is Derived based on International Market Price", Press Information Bureau, Ministry of Petroleum and Natural Gas, February 13, 2020. 

[4] PAHAL-Direct Benefits Transfer for LPG (DBTL) Consumers Scheme, Ministry of Petroleum and Natural Gas,  http://petroleum.nic.in/dbt/whatisdbtl.html.

Union Budget 2020-21: Are the fiscal targets realistic?

Today, a general discussion on the Union Budget 2020-21 is being held in both Houses of Parliament.  In the budget, the government presented the estimates of the money it expects to spend on various ministries, and how much money will be raised from different sources such as levy of taxes and dividends from public enterprises in 2020-21.  In addition, the budget presented the revised estimates made by the government for the year 2019-20 in comparison to the estimates it had given to Parliament in the previous year’s budget.  The budget also gave an account of how much money the government actually raised and spent in 2018-19.  

What are revised estimates?

Some of the estimates made by the government might change during the course of the year.  For instance, once the year gets underway, some ministries may need more funds than what was actually allocated to them in the budget, or the receipts expected from certain sources might change.  Such deviations from the budget estimates get reflected in the figures released by the government at later stages as part of the subsequent budgets.  Once the year ends, the actual numbers are audited by the Comptroller and Auditor General of India (CAG), post which they are presented to Parliament with the upcoming budget, i.e. two years after the estimates are made.

For instance, estimates for the year 2019-20 were presented as part of the 2019-20 budget in July 2019.  In the 2020-21 budget (February 2020), the government presented 2019-20’s revised estimates based on the actual receipts and expenditure accounted so far during the year and estimations made for the remaining 2-3 months.

Is there a way to find out the government’s actual receipts or expenditure mid-year?

The actual receipts and expenditure accounts of the central government are maintained by the Controller General of Accounts (CGA), Ministry of Finance on a monthly basis.  On January 31, 2020, the CGA updated the accounts figures for the period April to December 2019.  Thus, we have unaudited actuals for the first nine months of the financial year.

How do the actual figures for the year 2019-20 so far compare with the revised estimates?

Table 1 gives the revised estimates presented by the central government for the year 2019-20 and the monthly account figures maintained by the CGA for the nine-month period April to December 2019.  The difference between these two figures gives us the three-month target that the government will have to meet by March 2020 to reach its revised estimates.    

Till December 2019, the government has spent Rs 21.1 lakh crore, which is 78% of the revised estimates for 2019-20.  While the expenditure has reached 78% of the target, so far, the government has been able to generate only Rs 11.8 lakh crore or 61% of the receipts (excluding borrowings) for the year 2019-20.  This implies that the receipts will have to grow at a rate of 41% in the three-month period January-March 2020 to meet the revised estimates of Rs 19.3 lakh crore.   So far, receipts have grown at a rate of 4%.

Table 1:  Budget at a Glance – Comparison of 2019-20 revised estimates with Apr-Dec 2019 figures (Rs crore)

Budget

at a Glance

Actuals

Revised

Nine-month period

Three-month target

Growth rate so far

Growth target

2018-19

2019-20

Apr-Dec 2019

Jan-Mar 2020

% change
  (Apr-Dec 2018 to Apr-Dec 2019) 

% change
  (Jan-Mar 2019 to Jan-Mar 2020) 

Revenue Expenditure

20,07,399

23,49,645

18,54,125

4,95,520

14%

28%

Capital Expenditure

3,07,714

3,48,907

2,55,522

93,385

21%

-3%

Total Expenditure

23,15,113

26,98,552

21,09,647

5,88,905

15%

22%

Revenue Receipts

15,52,916

18,50,101

11,46,897

7,03,204

6%

50%

Capital Receipts

1,12,779

81,605

31,025

50,580

-33%

-24%

of which Disinvestment

94,727

65,000

18,100

46,900

-47%

-22%

Total Receipts (without borrowings)

16,65,695

19,31,706

11,77,922

7,53,784

4%

41%

Revenue Deficit

4,54,483

4,99,544

7,07,228

-2,07,684

   

Fiscal Deficit

6,49,418

7,66,846

9,31,725

-1,64,879

 

 

Primary Deficit

66,770

1,41,741

5,07,411

-3,65,670

   

Sources:  Union Budget 2020-21; Controller General of Accounts, Ministry of Finance; PRS.

How do the actual tax receipts fare in comparison to the revised estimates of 2019-20?

A lower than estimated growth in nominal GDP has also affected the tax receipts of the government during the year. The 2019-20 budget estimated the nominal GDP to grow at 12% over the previous year, whereas the latest estimates suggest this growth rate to be 7.5% in 2019-20.  The revised estimates for 2019-20 show gross tax receipts of Rs 21.6 lakh crore (includes states’ share).  Till December 2019, tax receipts of Rs 13.8 lakh crore has been collected, which is 64% of the target.  The tax receipts will have to grow at 19% in the three-month period January-March 2020 to meet the target.  Table 2 shows similar comparison for the various taxes and also for the tax receipts devolved to states.  While the budget estimated a growth in receipts from all major taxes, receipts from taxes such as corporation tax (-14%), union excise duties (-2%), and customs (-12%) have declined during the period Apr-Dec 2019.

Table 2:  Tax receipts – Comparison of 2019-20 revised estimates with Apr-Dec 2019 figures (Rs crore)

Revenue

Receipts

Actuals

Revised

Nine-month period

Three-month target

Growth rate so far

Growth target

2018-19

2019-20

Apr-Dec 2019

Jan-Mar 2020

% change
  (Apr-Dec 2018 to Apr-Dec 2019) 

% change
  (Jan-Mar 2019 to Jan-Mar 2020) 

Gross Tax Revenue

20,80,465

21,63,423

13,83,035

7,80,388

-3%

19%

Devolution to States

7,61,454

6,56,046

4,76,113

1,79,933

-2%

-34%

Net Tax Revenue

13,17,211

15,04,587

9,04,944

5,99,643

-3%

57%

Dividend and Profits

1,13,420

1,99,893

1,61,979

37,914

175%

-30%

Other Non-tax Revenue

1,22,284

1,45,620

79,974

65,646

-10%

96%

Revenue Receipts

15,52,916

18,50,101

11,46,897

7,03,204

6%

50%

Note:  Figures for income tax exclude receipts from the Securities Transaction Tax.

Sources:  Receipts Budget, Union Budget 2019-20; Controller General of Accounts, Ministry of Finance; PRS.

If we look at sources of receipts other than taxes, non-tax revenue during Apr-Dec 2019 is Rs 2.4 lakh crore, i.e. 69% of the estimated Rs 3.5 lakh crore.  Disinvestment receipts till date amounted to Rs 18,100 crore, i.e. 17% of the budget target of Rs 1.05 lakh crore.  Though the investment target has been revised down to Rs 65,000 crore, it implies that Rs 47,000 crore would need to be raised in the next two months.    

How does this impact the borrowings of the government?

When the expenditure planned by the government is more than its receipts, the government finances this gap through borrowings.  This gap is known as fiscal deficit and equals the borrowings required to be made for that year.  Given lower than expected receipts, the government has had to borrow more money than it had planned for.  Borrowings or fiscal deficit of the government, till December 2019, stands at Rs 9.3 lakh crore, which is 22% higher than the revised estimate of Rs 7.7 lakh crore.  Note that with three months still remaining in the financial year, fiscal deficit may further increase, in case receipts are less than expenditure.

When we look at fiscal deficit as a percentage of GDP, the 2019-20 budget estimated the fiscal deficit to be at 3.3% of GDP.  This has been revised upward to 3.8% of GDP.  However, till December 2019, fiscal deficit for the year 2019-20 stands at 4.6% of GDP (taking the latest available GDP figures into account, i.e. the First Advance Estimates for 2019-20 released in January 2020).  This increase in fiscal deficit as a percentage of GDP is because of two reasons: (i) an increase in borrowings as compared to the budget estimates, and (ii) a decrease in GDP as compared to the estimate made in the budget.  The latter is due to a lower than estimated growth in nominal GDP for the year 2019-20.   The 2019-20 budget estimated the nominal GDP to grow at 12% over the previous year, whereas the latest estimates suggest this growth rate to be 7.5% in 2019-20.

Note that, in addition to the expenditure shown in the budget, the government also spends through extra budgetary resources. These resources are raised by issuing bonds and through loans from the National Small Savings Fund (NSSF).  The revised estimates for 2019-20 show an expenditure of Rs 1,72,699 crore through such extra-budgetary resources. This includes an expenditure of Rs 1,10,000 crore by the Food Corporation of India financed through loans from NSSF. Since funds borrowed for such expenditure remain outside the budget, they do not get factored in the deficit and debt figures.  If borrowings made in the form of extra-budgetary resources are also taken into account, the fiscal deficit estimated for the year 2019-20 would increase from 3.8% of GDP to 4.6% of GDP due to extra-budgetary borrowings of Rs 1,72,699 crore.  This does not account for further slippage if the targeted revenue does not materialise.   

Recommendations of the 15th Finance Commission for 2020-21

The Finance Commission is a constitutional body formed by the President of India to give suggestions on centre-state financial relations.  The 15th Finance Commission is required to submit two reports.  The  first report will consist of recommendations for the financial year 2020-21.  The final report with recommendations for the 2021-26 period will be submitted by October 30, 2020. In this post, we explain the key recommendations of the report.  

What is the amount of tax devolution to the states, and how is it being calculated?

The Finance Commission uses certain criteria when deciding the devolution to states.  For example, income distance criterion has been used by the 14th and 15th Finance Commissions.  Under this criterion, states with lower per capita income would be given a higher share to maintain equity among states.  Another example is Demographic Performance criterion which has been introduced by the 15th Finance Commission.  The Demographic Performance criterion is to reward efforts made by states in controlling their population. 

The 15th Finance Commission used the following criteria while determining the share of states: (i) 45% for the income distance, (ii) 15% for the population in 2011, (iii) 15% for the area, (iv) 10% for forest and ecology, (v) 12.5% for demographic performance, and (vi) 2.5% for tax effort.  For 2020-21, the Commission has recommended a total devolution of Rs 8,55,176 crore to the states, which is 41% of the divisible pool of taxes.  This is 1% lower than the percentage recommended by the 14th Finance Commission.  

Table 1 below compares the new criteria with the criteria recommended by the 14th Finance Commission.

 Table 1: Criteria for devolution (2020-21)

Criteria

14th FC

2015-20

15th FC

2020-21

Income Distance

50.0

45.0

Population 1971

17.5

-

Population 2011

10.0

15.0

Area

15.0

15.0

Forest Cover

7.5

-

Forest and Ecology

-

10.0

Demographic Performance

-

12.5

Tax Effort

-

2.5

Total

100

100

 Sources: Report for the year 2020-21, 15th Finance Commission; PRS.

Uttar Pradesh and Bihar have received the largest devolutions for 2020-21, receiving Rs 1,53,342 crore, and Rs 86,039 crore respectively.   Karnataka and Kerala saw the largest decreases in the share of the divisible pool with a decrease of 0.49% and 0.25% respectively.  Table 2 below displays the state-wise breakdown of the share in the divisible pool and the total devolution.

Table 3: Share of states in the centre’s taxes

State

14th Finance Commission

15th Finance Commission

Devolution for FY 2020-2021

Share out of 42%

Share in divisible pool

Share out of 41%

Share in divisible pool

(In Rs crore)

Andhra Pradesh

1.81

4.31

1.69

4.11

35,156

Arunachal Pradesh

0.58

1.38

0.72

1.76

15,051

Assam

1.39

3.31

1.28

3.13

26,776

Bihar

4.06

9.67

4.13

10.06

86,039

Chhattisgarh

1.29

3.07

1.4

3.42

29,230

Goa

0.16

0.38

0.16

0.39

3,301

Gujarat

1.3

3.1

1.39

3.4

29,059

Haryana

0.46

1.1

0.44

1.08

9,253

Himachal Pradesh

0.3

0.71

0.33

0.8

6,833

Jammu and Kashmir

0.78

1.86

-

-

-

Jharkhand

1.32

3.14

1.36

3.31

28,332

Karnataka

1.98

4.71

1.49

3.65

31,180

Kerala

1.05

2.5

0.8

1.94

16,616

Madhya Pradesh

3.17

7.55

3.23

7.89

67,439

Maharashtra

2.32

5.52

2.52

6.14

52,465

Manipur

0.26

0.62

0.29

0.72

6,140

Meghalaya

0.27

0.64

0.31

0.77

6,542

Mizoram

0.19

0.45

0.21

0.51

4,327

Nagaland

0.21

0.5

0.23

0.57

4,900

Odisha

1.95

4.64

1.9

4.63

39,586

Punjab

0.66

1.57

0.73

1.79

15,291

Rajasthan

2.31

5.5

2.45

5.98

51,131

Sikkim

0.15

0.36

0.16

0.39

3,318

Tamil Nadu

1.69

4.02

1.72

4.19

35,823

Telangana

1.02

2.43

0.87

2.13

18,241

Tripura

0.27

0.64

0.29

0.71

6,063

Uttar Pradesh

7.54

17.95

7.35

17.93

            1,53,342 

Uttarakhand

0.44

1.05

0.45

1.1

9,441

West Bengal

3.08

7.33

3.08

7.52

64,301

Total 

42

100

41

100

            8,55,176 

Sources: Reports of 14th and 15th Finance Commission; PRS.

What are the various grants recommended by the 15th Finance Commission?

The Terms of Reference of the Finance Commission require it to recommend grants-in-aid to the States.  These grants include: (i) revenue deficit grants, (ii) grants to local bodies, and (iii) disaster management grants.

14 states are estimated to face a revenue deficit post-devolution.  To make up for this deficit, the Commission has recommended revenue deficit grants worth Rs 74,341 crore to these 14 states.  Additionally, three states (Karnataka, Mizoram, and Telangana) have received special grants worth Rs 6,674 crore.  The special grants are being given to compensate for a decline in the sum of tax devolution and revenue deficit grants in 2020-21 as compared to 2019-20.

The Commission has recommended a total of Rs 90,000 crore for grants to the local bodies in 2020-21.  This amounts to an increase over the Rs 87,352 crore allocated for 2019-20 for the same.  The new allocation is 4.31% of the divisible pool.  Of this sum, Rs 60,750 crore has been recommended for rural local bodies, and Rs 29,250 crore for urban local bodies.  These grants will be made available to all three tiers of Panchayat- village, block, and district.

To promote local-level mitigation activities, the Commission has recommended the setting up of National and State Disaster Management Funds.  Recommended grants for the State Disaster Risk Management Fund is Rs 28,983 crore, while the allocation for the National Disaster Risk Management Fund is Rs 12,390 crore.

Apart from these, guidelines for performance-based grants and sector-specific grants have been outlined.  The Commission has recommended a grant of Rs 7,375 crore for nutrition in 2020-21.  Sectors for which sector-specific grants will be provided in the final report include: (i) nutrition, (ii) health, (iii) pre-primary education, (iv) judiciary, and (v) railways.  

For more details, please see our  summary of the report.