With the national lockdown entering its fourth stage on Monday, the finances of major states across the country are likely to come under severe pressure while job losses are expected to mount. An analysis done by Crisil says eight states, which account for 60 percent of country's GDP and 58 percent workforce, have a higher share of red zones compared to other parts of the country. Red zones are areas where any economic activity is still prohibited. This is likely to not only put the finances of these states under pressure but also result in huge loss of employment.
"Maharashtra, Tamil Nadu and Gujarat, being most dependent on output from industry and services, are more vulnerable to output losses as they face restrictions," the report says. "Andhra Pradesh, Rajasthan and Uttar Pradesh are fiscally more vulnerable due to relatively higher debt ratios. These states also have high dependence on revenue sources from petroleum, liquor and stamp duty. Andhra Pradesh, West Bengal and Tamil Nadu have higher share of informal workforce, which is vulnerable to job losses."
These states that, including Telengana, account for 65.5 percent of India's manufacturing output, 60 percent of construction output and 53 percent of services. They are also very vulnerable to job losses as only 24 percent of the workforce in these states are in organised sector out of which 43 percent do not have a valid job contract, higher than the national average of 38 percent. Another 26 percent are employed as casual labour and half of the workforce is self employed. "Higher proportion of informal workforce in Andhra Pradesh, West Bengal, Tamil Nadu and Rajasthan make them more susceptible to job losses," Crisil said.
The impact on their finances will also be severe as taxes from petroleum, liquor and stamp duty account for a bulk of their revenues. "With the lockdown, revenues from these sources have dried up. Taxes on petroleum, stamp duties and registration are dependent on economic activity and usually tend to dip during slowdowns," it said. "But the fall in excise from liquor - a relative inelastic source of revenue accounting for 10 percent of the own tax revenue of states - will diminish states' coffers. This could otherwise have helped during a downturn," it added.