Pre-lockdown period: Early measures for containment
Following the first confirmed case involving a returnee from Wuhan, China, the initial responses by the state were aimed at surveilling, identifying, and conducting risk-based categorisation of all passenger arrivals from China and others who had come in close contact with these travellers. As two more cases were confirmed on February 2 and 3, the state government declared a health emergency in the state.
Subsequently, a health advisory was issued to track, identify, and test all travellers with a travel history to Wuhan since January 15, 2020. Such passengers and their close contacts were to be kept in isolation for 28 days. The advisory also directed all lodging establishments to maintain a register of travellers with travel histories to corona-affected countries. A similar advisory was issued for student returnees as well. With no further confirmed cases being reported immediately, on February 12, the state withdrew the health emergency. However, a high state of response and surveillance continued to be applied.
Second wave of infections
When a second wave of infections began spreading in early March, the government took several multi-pronged measures to address the threat. The following measures were taken in this regard:
- Health measures: Revised guidelines for the clinical management of COVID19 patients, covering testing, quarantine, hospital admission, and discharge, were issued.
- Instructions were issued regarding airport safety protocols as well as testing of foreign nationals entering and exiting the state. All foreign arrivals, even if asymptomatic, were to be kept in isolation until their test reports were available.
- Further guidelines and precautions on social distancing and various hygiene norms, such as, use of sanitsers, were also issued to malls, shopping centres, and salons.
- Movement restrictions: All non-medical educational institutions, including anganwadis and madrassas were immediately shut down till March 31 and exams of classes 1-7 were postponed. Exams for classes 8 and above were to be held as scheduled. University exams were also postponed till March 31.
- Government departments were asked to make temporary arrangements regarding working hours of their employees. Officials were also instructed to look into welfare measures for migrant workers.
- Guidelines were also issued to private establishments regarding working time, safety measures, and leave for employees.
- Administrative Measures: On March 17, COVID19 was declared a notified disaster, thus becoming eligible for funds from the State Disaster Response Fund (SDRF). SDRF is the primary fund available with state governments for responses to notified disasters. Notifying a disaster enables states to spend more from the SDRF to fight the said disaster.
- In order to better coordinate the state’s response, the government issued instructions to constitute COVID-19 cells in all departments. Meetings and inspections by government officials were also to be avoided.
- Local Self Government institutions were assigned various roles and responsibilities. These include: (i) running awareness programs, such as, ‘Break the Chain’ initiative, (ii) conducting sanitation and cleanliness drives, (iii) regular outreach to home isolated/quarantined persons, (iv) activating committee system to manage responsibilities, (v) ensuring availability of essential commodities, (vi) categorising and ensuring available response mechanisms, such as, material resources, volunteers, medical resources etc, and (vii) ensuring special attention to vulnerable populations, such as senior citizens, and persons with co-morbidities or undergoing special treatments.
The lockdown period
On March 23, Kerala announced a state-wide lockdown till March 31. A day later, the central government announced a nation-wide 21-day lockdown.
Restrictions imposed under the state’s order included: (i) stoppage of all forms of passenger transport services, (ii) prohibition of a gathering of more than five persons, and (iii) closure of all commercial establishments, officers, and factories, except those exempted. Use of taxis, autos or private vehicles was permitted only for procurement of essential commodities or for medical emergencies. Establishments providing essential goods and services such as banks, media, telecom services, petrol bunks, and hospitals were permitted to operate.
On April 15, the central government extended the lockdown till May 3. Some of the key measures undertaken during the lockdown period are:
Administrative Measures
- A round-the-clock war room, comprising members of different departments, was set up to monitor and supervise all COVID-19 containment activities.
- A Corona media cell was set up to monitor and tackle the threat of fake news surrounding COVID19.
- With the legislature not in session, the Kerala Epidemic Diseases Ordinance, 2020 was promulgated by the Governor of Kerala on March 26. The Ordinance empowers the state government to undertake necessary measures and specify regulations to counter the threat of an epidemic disease. It also specifies a penalty for those who violate orders made under this Ordinance.
Healthcare Measures
- Treatment guidelines: The government, on March 26, declared the entire state as COVID-19 affected. On March 24, the government had issued clinical guidelines for the investigation and treatment of COVID-19 cases. A week later, a simplified matrix for isolation/quarantine and testing was released.
- Advisories were issued for: (i) antenatal and delivery care for pregnant women, (ii) withholding and restarting routine vaccination of children, (iii) ensuring continuity of services for TB patients, and (iv) management of alcohol use disorders.
- Testing: Regular guidelines regarding testing were also issued. They include (i) advisory on using rapid diagnostic kits, (ii) in-principle sanction to develop such rapid kits, and (iii) guidelines for antibody testing by the private sector.
- Resource management: To respond to the increase in confirmed cases, guidelines were issued to convert private hospitals into COVID hospitals. The tenures of medical professionals retiring on March 31 were extended up to June 30. Temporary recruitment measures for Health Inspectors were also introduced.
- Guidelines were issued for human resource management in all COVID-19 hospitals, in order to ensure the safety of the frontline health workers.
- Further, to prepare the next phase of response, the government has also issued (i) guidelines to identify community transmission, and (ii) released criteria for identification of hotspots.
Essential Goods and Services
- On March 25, the state declared a list of essential services under the Kerala Essential Services Maintenance Act, 1994.
- Various exemptions from lockdown were issued to services that were later deemed essential. These include: (i) shops and bakeries, including departmental stores, (ii) online food deliveries, (iii) parcel services, for delivery of essential goods, (iv) automobile service workshops, (v) shops and service centres for mobile phones, computers etc, only on Sundays, and (vi) plumbers and electricians to undertake maintenance work in houses and flats.
- On April 3, orders were issued to set up community kitchens under the aegis of Kudumbasree and Local Self Governments (LSGs). Kudumbasree is the poverty eradication and women empowerment programme implemented by the Kerala government. As on April 20, a total of 339 Community Kitchens have been functioning in 249 panchayats across 14 districts of the state. They have served a total of 5,91,687 meals since April 4, 2020. The government has also instructed LSGs to hire volunteers for the kitchen and pay them an honorarium of Rs. 400 (for one-time service) or Rs. 650 (for the whole-day).
Welfare Measures
- Under SDRF norms, funds were released to the Health Department for relief and response activities for COVID-19.
- Each District Collector has been allocated Rs. 50 lakh for carrying out various COVID-19 outbreak-related control and prevention activities.
- Financial assistance has been sanctioned to (i) fishermen, (ii) artists, (iii) lottery agents and sellers, and (iii) elephants and other such animals being looked after.
- A 2000-crore worth Chief Minister’s Helping Hand Loan Scheme was announced for people facing lockdown-related unemployment and hardships. The scheme will be operationalised through neighbourhood groups under the aegis of Kudumbasree.
Post-lockdown strategies – Strategies easing lockdown relaxations
- Expert Committee: On April 4, an Expert Committee was constituted by the government and on April 6, the Committee submitted its Report on the guidelines for post-lockdown regulations. It recommended a conditional, three-phase strategy, with districts being the unit of implementation. Relaxations would be progressively eased in each phase depending on criteria, such as, (i) number of new confirmed cases, (ii) percentage increase/decrease in number of persons under home surveillance, and (iii) no emergence of hotspots..
- Containment Guidelines: After the lockdown was extended till May 3, the state released revised guidelines for containment, that recommended classification of districts into four zones, based on number of cases and disease threat. The zones – Red, Orange A, Orange B, and Green – would have different, graded restrictions, with Red having stringent restrictions in the form of a lockdown till May 3. The Orange A and B zones would have a lockdown till April 24 and 20 respectively, followed by a partial relaxation thereafter. Green zone would have a lockdown till April 20 and relaxation in restrictions thereafter.
- Based on the above order, the state issued an advisory for industrial units to follow while resuming operations. Some of the Standard Operating Procedures to be followed include: (i) conducting disinfectation of premises, machinery, and vehicles, (ii) arranging exclusive transportation facilities with vehicles operating at 30-40% capacity, (iii) mandatory thermal scanning of people, (iv) following hygiene and social distancing norms, including a cap on elevator capacities and size of meetings (v) mandatory corona-related insurance cover for workers, (vi) mandatory use of CCTVs, and (vii) preparing a list of nearby COVID-19 hospitals .
For more information on the spread of COVID-19 and the central and state government response to the pandemic, please see here.
Between the last time Parliament met in March 2020 and the ongoing Monsoon session (a period of nearly six months), the government issued 941 notifications across sectors in response to the COVID-19 pandemic. It also announced a Rs 20 lakh crore economic package to improve the state of the economy and provide relief to those affected by the nationwide lockdown. In addition, the government also proposed long-term policy changes during this period in sectors such as agriculture, economy, and education.
One of the key roles of a Member of Parliament (MP) is to hold the government accountable for its policies and actions. Parliamentary questions are one of the key instruments MPs use to exercise this role. Questions help MPs seek information from the government on matters of public importance and on the status of implementation of its policies and programmes.
However, in view of the prevailing extraordinary situation due to COVID-19, both Lok Sabha and Rajya Sabha have suspended their Question Hour, which would have allowed MPs to seek oral responses from Ministers and ask follow-up questions. However, unstarred questions are admitted, for which written answers are provided.
This post provides an overview of the government’s response to some of the key questions raised by MPs during the first five days (September 14, 2020, to September 18, 2020) of the session.
Unstarred questions in the Monsoon session
A total of 1,950 unstarred questions have been asked in the first five days of the Monsoon session of the Parliament (1,150 questions in Lok Sabha and 800 questions in Rajya Sabha). The Ministries in focus for the questions were: Health (154 questions), Agriculture (127 questions), Education (104 questions), Finance (96 questions), and Railways (80 questions).
Questions ranged from the impact of the lockdown to strategy for vaccine procurement, to the status of the programmes announced to alleviate COVID related issues. Besides COVID-19, there were questions around India-China trade, locust attacks, and custodial deaths.
On COVID-19 testing and vaccine strategy
Testing data and Health infrastructure: In response to a question, the government informed that India is conducting nearly 10-11 lakh tests every day and so far, a total of 6.05 crore samples have been tested for COVID-19. Nearly 40% of the confirmed cases are persons between the age of 26-44.
To improve health capacity, as of Sep 15, a total of 15,360 COVID treatment facilities have been created with:
- 13,20,881 dedicated isolation bed (without oxygen support)
- 2,32,516 oxygen supported isolation beds
- 63,194 ICU beds (including 32,409 ventilator beds)
Vaccine development: The Central Drugs Standard Control Organisation has granted permission for conduct of clinical trials in the country to the following: (i) Bharat Biotech International Ltd. and Cadila Healthcare (these are in phase 1 and phase 2 of trials), and (ii) Serum Institute of India Pvt. Ltd (for vaccine developed by University of Oxford/AstraZeneca - this is in Phase 3, or advanced phase, of the trials).
The government is also exploring the possibility of cooperation with Russia for advancing the COVID-19 vaccine in India.
Health insurance: The Ministry noted that data on the number of healthcare workers who are infected by COVID-19 or who have lost lives during COVID duty is not maintained at the central level. As per data from the Pradhan Mantri Garib Kalyan Insurance Package, a total of 155 medical staff, including 64 doctors, have died due to COVID-19. The scheme provides an insurance cover of Rs 50 lakh (including loss of life) to healthcare providers, including community health workers, who may have come in direct contact of COVID-19 patients and who may be at risk of being impacted by this.
Under the Ayushman Bharat Scheme, a total of 4.03 lakh hospitalisations have been registered (and authorised) towards the treatment of COVID-19. Under Ayushman Bharat, the government provides health cover of five lakh rupees per family per year, for secondary and tertiary care to around 10.7 crore vulnerable families.
Impact on other health services: In light of COVID-19, that there has been a 19.4% drop in Hepatitis-B birth doses administered and a 31% drop in vaccination sessions held in health facilities and outreach sessions from April-June 2020 as compared to the same period last year. Similarly, there has been a drop of 23.9% in institutional delivery in the April-June 2020 quarter as compared to the same period last year.
Impact of COVID-19 on Indian economy
Trade: Responding to a question on the impact of COVID on exports, the government provided the following data:
- Overall exports declined by 25.4% during April-June 2020 (compared to the same period in 2019). However, data for August 2020 shows a recovery in exports with the decline reducing to 12.7% (compared to August 2019).
- The export of goods from Special Economic Zones (SEZs) was Rs 81,481 crore in the April-June 2020, 37% lower than the corresponding period in 2019 (Rs 1,30,129 crore).
India-China trade: Members also raised questions on the impact of COVID and the border issue with Ladakh on Indo-China trade. The government held that it has taken steps to balance the trade with China by increasing exports and reducing import dependence. The trade deficit with China during April-June 2020 was USD 5.5 billion as compared to USD 13.1 billion during the same period last year.
Table 1: Trade deficit with China (in billion dollars)
|
Year |
2016-17 |
2017-18 |
2018-19 |
2019-20 |
April - June 2019 |
April - June 2020 |
|
Export |
10.17 |
13.33 |
16.75 |
16.61 |
4.16 |
5.53 |
|
Import |
61.28 |
76.38 |
70.31 |
65.26 |
17.26 |
11.01 |
|
Total Trade |
71.45 |
89.71 |
87.07 |
81.87 |
21.42 |
16.55 |
|
Trade Deficit |
-51.11 |
-63.04 |
-53.56 |
-48.64 |
-13.1 |
-5.48 |
Sources: Unstarred Question No. 647, Lok Sabha, answered on September 16, 2020; PRS.
With regard to the import of Active Pharmaceutical Ingredients (bulk drugs), bulk drugs account for nearly 63% of total pharmaceutical imports in India as per government data. Of these, 68% of the bulk drugs imported by India in 2019-20 were from China.
Civil aviation: The government informed that the revenue of Indian carriers was down by nearly 86% during April-June 2020, as compared to the same period last year.
Table 2: Impact of COVID-19 on the civil aviation sector
|
Indicator |
Previously |
Now |
% Change |
|
Revenue related |
April-June 2019 |
April-June 2020 |
|
|
Revenue of Indian carriers |
Rs 25,517 crore |
Rs 3,651 crore |
-85.7% |
|
Revenue of Air India |
Rs 7,066 crore |
Rs 1,531 crore |
-78.3% |
|
Revenue of Airport Operators |
Rs 5,745 crore |
Rs 894 crore |
-84.4% |
|
Employment related |
March 31, 2020 |
July 31, 2020 |
|
|
Employment at airlines |
74,887 |
69,589 |
-7.1% |
|
Employment at airports |
67,760 |
64,514 |
-4.8% |
|
Employment at ground handling agencies |
37,720 |
29,254 |
-22.4% |
|
Employment at Cargo operators |
9,555 |
8,538 |
-10.6% |
|
Traffic related |
March-July 2019 |
March-July 2020 |
|
|
Total domestic traffic |
5,85,30,038 |
1,20,84,952 |
-79.4% |
|
Total international traffic |
93,45,469 |
11,55,590 |
-87.6% |
Sources: Unstarred Question No. 872, Lok Sabha, answered on September 17, 2020; PRS.
Vande Bharat Mission: The Vande Bharat Mission was launched on May 7, 2020 to facilitate the return of Indian nationals stranded in various countries. As of September 10, 2020, a total of 13,74,237 Indians have returned to India and the total cost incurred for this effort was Rs 22.5 crore. Of these, about 3 lakh people were working outside India. The government stated that SWADES (Skilled Workers Arrival Database for Employment Support) initiative has been launched to conduct a skill mapping exercise of the returning citizens under the Vande Bharat Mission.
Metro rail: Due to the lockdown, metro services in different cities came to a halt. This has led to a loss of Rs 1,609 crore for the Delhi Metro. The loss incurred due to the halting of the other metros was: Rs 170 crore for Bengaluru Metro, Rs 90 crore for Lucknow Metro, Rs 80 crore for Chennai Metro, and Rs 34 crore for Kochi Metro.
On Shramik special trains and Vande Bharat Mission
Railways revenue: As of August 2020, the total revenue of Railways was Rs 41,844 crore, which is a decline of 42% over the corresponding period last year. Of this, Rs 39,648 crore (95%) was freight revenue. During April to August 2020, the passenger traffic was 1.3% of the traffic in the corresponding period last year, and the freight traffic was 86.7% of the traffic seen in the corresponding period last year. The total amount of refund made to passengers due to cancellation of trains booked till April 14, 2020 (for the journey period between March 22, 2020 and August 12, 2020) was Rs 3,371 crore.
Special trains: Several members asked questions about the Shramik special trains, the number of migrant labourers who returned to their home states, and the loss of revenue to railways due to restrictions on travel and movement. The government responded that 4,621 shramik special trains were run from May 1 to August 31, 2020, which transported 63 lakh passengers across the country. Based on the data provided by states, 97 persons passed away while travelling on Shramik special trains (as of September 9, 2020). A total fare of Rs 433 crore was collected from the state governments for running these special trains.
The government also started other special trains (15 pairs of Rajdhani Express and special trains for examinations such as JEE and NEET). The average occupancy in these trains (from May 12 to August 31, 2020) was around 82%.
On Migrant labourers, relief measures and MGNREGS
A total of 1.05 crore migrant workers have returned to their home state till now (maximum to Uttar Pradesh, followed by Bihar, West Bengal, and Rajasthan). State-wise details are listed in the table below.
Table 3: Number of migrant workers who have returned to home-state (as of September 14, 2020)
|
State |
Workers who have returned to the state |
|
Uttar Pradesh |
32,49,638 |
|
Bihar |
15,00,612 |
|
West Bengal |
13,84,693 |
|
Rajasthan |
13,08,130 |
|
Madhya Pradesh |
7,53,581 |
|
Jharkhand |
5,30,047 |
|
Punjab |
5,15,642 |
|
Assam |
4,26,441 |
|
Kerala |
3,11,124 |
|
Maharashtra |
1,82,990 |
|
Tamil Nadu |
72,145 |
Sources: Unstarred Question No. 197, Lok Sabha, answered on September 14, 2020; PRS.
Responding to a question on whether free grains under the Aatma Nirbhar Scheme had reached the migrant workers, the government stated that no data on the number of migrants/stranded migrant persons across the country was available with the Department of Food Distribution and that the responsibility of identification of beneficiaries under this scheme was entrusted with states. The government informed that states have indicated about 2.8 crore migrant worker beneficiaries. As of August 31, 2020, food grains have been distributed to 2.67 crore of the identified beneficiaries for the months of June and July 2020.
MGNREGS: On whether the migrant labourers have been provided jobs under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), the government said that there is no provision to register a job cardholder categorized as a migrant labourer in the card in the scheme. It stated that a total of 86.82 lakh new job cards have been issued this year so far, against a total of 64.96 lakh cards issued during the same period last year. The employment provided under the scheme was nearly 100% higher for the months of June and July 2020, as compared to the corresponding months in 2019. The total demand (from April 2020 to September 12, 2020) for employment under the scheme was 22.5 crore persons, a 39% increase from 16.2 crore persons for 2019-20 (during the same period).
EPF withdrawal: In March 2020, as part of the relief package, the government increased the withdrawal limit from the Employee’s Provident Fund (EPF) accounts. In areas declared to be affected by an epidemic or pandemic, members are permitted to withdraw three months’ salary or 75% of the amount lying in the member’s PF account, whichever is lesser. The government stated that a total of Rs 39,403 crore has been withdrawn from EPF from March 25, 2020 to August 31, 2020. The withdrawal was highest in the states of Maharashtra (Rs 7,838 crore), Karnataka (Rs 5,744 crore), and Tamil Nadu (Rs 4,985 crore).
Other questions
Locust attack: Several members sought to know whether the locust attacks caused damage to crops and whether the government has provided any compensation to the affected farmers. The Ministry of Agriculture responded that the locust incursions were reported in the 10 states of Bihar, Chhattisgarh, Gujarat, Haryana, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Uttarakhand, and Uttar Pradesh. The Rajasthan government has reported crop damage of 33% or more in nearly 3,400-hectare area. Haryana has reported below 33% crop damage in 6,166-hectare area. No damage was reported in Gujarat, Chhattisgarh, Punjab, and Bihar. On compensation, the government stated that pest attack has been notified as a natural disaster and states could provide relief under the State Disaster Response Fund. However, no state government has reported any data yet on the distribution of relief to affected farmers.
Functioning of virtual courts: The Ministry of Law and Justice informed that 11,93,046 hearings were done by video conferencing between March 24, 2020 and July 15, 2020 by district and subordinate courts across India. Further, it stated that to handle challenges related to COVID-19, the government has allocated nearly Rs 30 crore for providing video conferencing equipment and facilitating help desk counters for e-filing in various court complexes
Custodial deaths: The government informed that a total of 1,697 persons died under police/ judicial custody, and a total of 112 cases were registered as encounter deaths (from April 2019 to March 2020). State-wise details are noted below in Table 4 for select states (they comprise 75% of the total custodial and encounter deaths in 2019-20). On whether the government is considering a legislation to prevent the torture of individuals by police and public officials, the Ministry of Home Affairs informed that police and public order are state subjects and there is no proposal to bring a legislation in this regard.
Table 4: Custodial deaths and Encounter deaths across select states (April 2019-March 2020)
|
State |
Custodial deaths |
Encounter deaths |
|
Uttar Pradesh |
403 |
26 |
|
Madhya Pradesh |
157 |
3 |
|
West Bengal |
122 |
1 |
|
Bihar |
110 |
5 |
|
Punjab |
99 |
1 |
|
Maharashtra |
94 |
3 |
|
Rajasthan |
84 |
2 |
|
Haryana |
77 |
1 |
|
Tamil Nadu |
69 |
3 |
|
Chhattisgarh |
59 |
39 |
Sources: Unstarred Question No. 292, Lok Sabha, answered on September 15, 2020; PRS
For this purpose, the GST (Compensation to States) Act was enacted in 2017 on the recommendation of the GST Council. The Act guarantees all states an annual growth rate of 14% in their GST revenue during the period July 2017-June 2022. If a state’s GST revenue grows slower than 14%, such ‘loss of revenue’ will be taken care of by the Centre by providing GST compensation grants to the state. To provide these grants, the Centre levies a GST compensation cess on certain luxury and sin goods such as cigarettes and tobacco products, pan masala, caffeinated beverages, coal, and certain passenger vehicles. The Act requires the Centre to credit this cess revenue into a separate Compensation Fund and all compensation grants to states are required to be paid out of the money available in this Fund.
How much compensation is provided to states?
For 2018-19, Centre gave Rs 81,141 crore to states as GST compensation. However, for the year 2019-20, the compensation requirement of states nearly doubled to Rs 1.65 lakh crore. A huge increase in requirement implies that states’ GST revenue grew at a slower rate during 2019-20. This can be attributed to the economic slowdown seen last year, which resulted in a nominal GDP growth of 7.2%. This was significantly lower than the 12% GDP growth forecast in the 2019-20 union budget (Figure 1).
Figure 1: GDP growth rate (2017-21)
Sources: Union Budget Documents; MOSPI; PRS.
In 2019-20, the gross GST revenue (Centre+states) increased by just 4% over the previous year. Despite this, due to the compensation guarantee, all states could achieve the growth rate of 14% in their GST revenue – much higher than the overall growth in GST revenue. However, there was a delay in payment of compensation from Centre. More than Rs 64,000 crore of the compensation requirement of states for 2019-20 was met in the financial year 2020-21.
What led to a delay in payment of compensation to states?
In 2019-20, the delay in payment was observed due to insufficient funds with Centre for providing compensation to states. These funds are raised by levying a compensation cess on the sale of certain goods, some of which were affected by the economic slowdown. For instance, in 2019-20, sales of passenger vehicles declined by almost 18% and coal offtake from domestic coal companies reduced by nearly 5%, over the previous year. As a result, cess collections registered a growth of just 0.4% in 2019-20 (Figure 2), against the 104% increase seen in the compensation requirement of states. This resulted in a shortfall of funds of nearly Rs 70,000 crore.
Figure 2: Cess collections insufficient for providing compensation
Note: In 2017-18, GST was implemented for only nine months. Compensation amount shown may not match with the amount released in that financial year because of delay in releases.
Sources: Union Budget Documents; Ministry of Finance; GST Council; Lok Sabha Questions; PRS.
How can compensation be paid to states if cess collections are insufficient?
The shortfall in collections for 2019-20 was met through: (i) surplus cess collections from previous years, (ii) partial cess collections of 2020-21, and (iii) a transfer of Rs 33,412 crore of unsettled GST funds from the Centre to the Compensation Fund. These unsettled funds are GST collections, generated in 2017-18 from inter-state and foreign trade, that have not yet been settled between centre and states.
In the 2020-21 budget, the Centre has estimated a 10% growth in nominal GDP. However, due to the impact of COVID-19 and the lockdown, the actual growth in 2020-21 is likely to be much lower. In such a scenario, states’ GST revenue would also be much lower than expected, thus leading to a higher compensation requirement. However, the ability of Centre to pay compensation depends on the cess collections, which are also getting impacted this year. For instance, cess collections during the period Apr-Jun 2020 have been 41% lower in comparison to the same period last year. Moreover, of the Rs 14,482 crore collections made during this period, Rs 8,680 crore has been likely used up for paying compensation for 2019-20.
Note that under the GST (Compensation to States) Act, 2017, Centre can provide compensation to states only through the money available in the Compensation Fund. The Union Finance Minister, in her budget speech in February 2020, clarified that transfers to the Fund would be limited only to collections of the GST compensation cess. Despite a shortfall of money in the Compensation Fund, the Centre is constitutionally obligated to meet states’ compensation requirement for a period of five years.
Various measures have been suggested to address the issue of shortfall in the Fund, either by reducing the compensation payable to states (which would require Parliament to amend the Act following GST Council’s recommendation) or by supplementing the funds available with Centre for providing compensation to states. The Act allows the GST Council to recommend other funding mechanisms/ amounts for credit into the Compensation Fund. For example, one of the measures proposed for meeting the shortfall involves Centre using market borrowings to pay compensation to states, with the idea that these borrowings will be repaid with the help of future cess collections. To enable this, the GST Council may recommend to Centre that the compensation cess be levied for a period beyond five years, i.e. post June 2022.
Impact on states post 2022
In 2019-20, except for a few north-eastern states, most states saw their compensation requirements increase multifold by 2-3 times, over the previous year’s figures. Table 1 shows the compensation requirement of states for the years 2018-19 and 2019-20. Six states (Delhi, Gujarat, Karnataka, Maharashtra, Punjab, and Tamil Nadu) accounted for 52% of the total requirement of compensation for 2019-20. Further, in some states such as Punjab and Delhi, compensation grants form a significant share of the overall revenue receipts (20% and 16% resepctively).
Note that states have been guaranteed compensation only for a period of five years. After June 2022, states dependent on compensation will observe a revenue gap due to a cut in these grants coming from Centre. States have roughly two years to bridge this gap with other tax and non-tax sources to avoid a potential loss of revenue, and a consequent fall in the size of their state budget, which could adversely affect the economy. To what extent will such concerns be alleviated remains to be seen based on the course of action decided by the GST Council.
Table 1: GST compensation requirement of states for 2018-19 and 2019-20 (in Rs crore)
|
State |
2018-19 |
2019-20 |
% increase in compensation requirement |
||
|
Amount |
As a % of revenue |
Amount |
As a % of revenue* |
||
|
Andhra Pradesh |
0 |
- |
3,028 |
3% |
- |
|
Assam |
455 |
1% |
1,284 |
1% |
182% |
|
Bihar |
2,798 |
2% |
5,464 |
4% |
95% |
|
Chhattisgarh |
2,592 |
4% |
4,521 |
7% |
74% |
|
Delhi |
5,185 |
12% |
8,424 |
16% |
62% |
|
Goa |
502 |
5% |
1,093 |
9% |
118% |
|
Gujarat |
7,227 |
5% |
14,801 |
10% |
105% |
|
Haryana |
3,916 |
6% |
6,617 |
10% |
69% |
|
Himachal Pradesh |
1,935 |
6% |
2,477 |
8% |
28% |
|
Jammu and Kashmir |
1,667 |
3% |
3,281 |
5% |
97% |
|
Jharkhand |
1,098 |
2% |
2,219 |
4% |
102% |
|
Karnataka |
12,465 |
8% |
18,628 |
11% |
49% |
|
Kerala |
3,532 |
4% |
8,111 |
9% |
130% |
|
Madhya Pradesh |
3,302 |
3% |
6,538 |
4% |
98% |
|
Maharashtra |
9,363 |
3% |
19,233 |
7% |
105% |
|
Meghalaya |
66 |
1% |
157 |
2% |
138% |
|
Odisha |
3,785 |
4% |
5,122 |
5% |
35% |
|
Punjab |
8,239 |
13% |
12,187 |
20% |
48% |
|
Rajasthan |
2,280 |
2% |
6,710 |
5% |
194% |
|
Tamil Nadu |
4,824 |
3% |
12,305 |
7% |
155% |
|
Telangana |
0 |
- |
3,054 |
3% |
- |
|
Tripura |
172 |
1% |
293 |
3% |
70% |
|
Uttar Pradesh |
0 |
- |
9,123 |
3% |
- |
|
Uttarakhand |
2,442 |
8% |
3,375 |
11% |
38% |
|
West Bengal |
2,615 |
2% |
6,200 |
4% |
137% |
Note: Arunachal Pradesh, Manipur, Mizoram, Nagaland, and Sikkim did not require any compensation in 2018-19 and 2019-20.
*Revenue for the year 2019-20 does not takes into account those GST compensation grants which were payable to states in 2019-20 but were released by Centre in the year 2020-21. The percentage figures would be slightly lower if such grants are included in 2019-20 revenue.
Sources: State Budget Documents; Ministry of Finance; Lok Sabha Questions; CAG; PRS.