The revenue challenge for the Centre and the States is a matter of great concern. Neither is in a position to raise taxes at a time of severe economic stress. Raising the price of petrol and diesel has a cascading effect on the general price-line. Mercifully, the latest spike in the central levies on fuel prices wouldn’t find a reflection in their pump price, but, nonetheless, denies consumers the benefit of a global slump in crude oil market.
In March, the excise duty and road and infrastructure cess was hiked by Rs.3 a litre on both petrol and diesel. On Tuesday, the Government hiked the excise duty on diesel by a whopping Rs.13 a litre and on petrol by Rs.10 a litre. Scraping the bottom of the barrel as it were, the previous day the Delhi Government had raised VAT on diesel and petrol by a steep Rs.7.10 per litre and Rs.1.67 a litre, fixing the retail price of these at Rs.69.59 a litre and Rs.71.26 a litre respectively. This would encourage people to drive to the neighbouring Haryana and UP to fill their fuel tanks. Some other States facing the financial crunch due to the lockdown have likewise hiked duties on petrol and diesel prices while others are likely to do so in the coming days as the sharp fall in revenues begins to bite. To give you an idea of the dire financial crisis facing the States — and the Centre as well — Delhi in the lockdown-ed April suffered a 90 per cent revenue loss while Rajasthan recorded a 70 per cent fall in revenue collection. Given that the lockdown has been extended till May 17th, it is unlikely that the overall revenue shortfall in the States can be made up in the remainder of the financial year, especially when expenditure on fighting the pandemic continues to deplete their resources. Liquor is another major source of revenue for the States.
On Tuesday, the Delhi Government imposed ‘a special 70 per cent corona tax’ on liquor with an eye on boosting its revenue. Liquor accounts for over 12 per cent of the total tax collection in the Union Territory. But from the serpentine queues extending up to five kilometres outside the liquor vends, it would suggest that despite the steep hike in prices, tipplers, denied their favourite brand of heady brew for over 40 days, were determined to buy the stuff. The only fear is that the steep price hike inDelhi might lead to hooch tragedies. Meanwhile, the chaotic conditions and a flagrant violation of social distancing by the tens of thousands who had lined up before liquor shops in Mumbai on Monday forced the Brihanmumbai Municipal Corporation to stop the sale of liquor altogether. Mumbai is among the most affected cities in the country, followed by Delhi and Ahmedabad. Maharashtra, like other States, has had to scrap all capital expenditure during the year. The financial conditions are so bad that revenue collections in April in some States are lower than their salary bill. Ideally, the Centre should compensate the States for the huge financial burden imposed by the pandemic, but the Centre too is hamstrung by poor finances. Although the GST collection for April has not as yet been disclosed, it cannot be much given the nation-wide economic shutdown. Even in May, despite some relaxations most businesses are yet to re-start, thus dimming the prospects of much improvement of revenue gain for the Centre and the States.
Meanwhile, the total number of cases had gone up to nearly 50,000 by Tuesday while the total fatalities numbered 1,700. Disturbingly, the rate of increase in the number of cases had progressively increased in each phase of the lockdown. Still, it should be some comfort that compared to most other countries, we still have a much lower number of positive cases and deaths. Whether it is due to the hard-wired immunity of Indians emanating from the unwholesome environment we live in or it is due to the tropical weather conditions cannot be said with any degree of certainty.
But given that the US has 70,000 fatalities, the UK and Italy, nearly 30,000 each, Spain andFrance over 25,000 each, our anti-corona operations seem not to have done badly. However, in one vital way those countries still fare better insofar as they enjoy a huge financial cushion to absorb additional burden imposed by the pandemic where we don’t. In our case, both the States and the Centre will have to together work out a mutually acceptable mechanism to tide over the great financial challenge.