Sitharaman's budget would cost Rs 1.53 lakh crore to states as central taxes

Senior Journalist Krishnanand Tripathi explains the true extent of damage caused to the finances of both the Centre and states by the economic slowdown. The loss to the state governments will be marginally higher in terms of absolute number and will be even steeper as a ratio to their projected receipts.

New Delhi:A careful reading of this year’s Union budget would reveal the true extent of damage caused to the finances of both the Centre and states by the economic slowdown.

In the revised estimates for FY 2019-20, finance minister Nirmala Sitharaman admitted that she will not be able to meet her budget targets for all five major taxes levied and collected by the Centre.

The economic slowdown has not only adversely impacted the Centre’s finances but it has hit equally hard the state governments as they will also lose over Rs 1.53 lakh crore as their share in the taxes collected by the Centre this year.

The GDP growth rate which has been slowing down in the last five quarters, declined to just 4.5% in July-September period. This is the lowest growth rate of GDP since January-March period of 2012-13. This slowdown has completely upset the finances of the Union government.

In her budget estimates for FY 2019-20, Nirmala Sitharaman projected a gross revenue collection of Rs 24.61 lakh crore when she presented her maiden budget in July 2019. It was supposed to be a sharp increase of Rs 2.13 lakh crore, from Rs 22.48 lakh crore (RE for FY 2018-19) to Rs 24.61 lakh crore (BE for FY 2019-20), an increase of 9.47%. She was confident as except GST, two other major taxes - Corporation Tax and Income Tax - showed signs of healthy growth this year.

In FY 2019-20, out of Rs 24.61 lakh crore to be collected by the Centre, state governments were set to receive Rs 8.09 lakh crore as their share in the taxes levied and collected by the Centre but appropriated by both the Central and state governments.

Read: Budget 2020: Oh, what a disappointment!

However, within just 7 months, between July 5, 2019 to February 1, 2020, Nirmala Sitharaman’s collection estimates for FY 2019-20 went haywire. The Union government’s gross tax collection is set to decline from Rs 24.61 lakh crore (BE 2019-20) to Rs 21.63 lakh crore (RE 2019-20), a decline of Rs 2.98 lakh crore or 12.1%.

As a result, the Union government’s tax collection is set to decline to Rs 15.05 lakh (net to the Centre) from the budget estimate of Rs 16.5 lakh crore, a loss of nearly Rs 1.45 lakh crore or 8.84%.

However, the loss to the state governments will be marginally higher in terms of absolute number and will be even steeper as a ratio to their projected receipts.

Though, state governments were set to receive Rs 8.09 lakh crore in FY 2019-20, however, as per the revised estimates given on Saturday their share will come down to just Rs 6.56 lakh crore, a loss of Rs 1.53 lakh crore or 18.91% against the budget estimate.