Mumbai, Sep 2 (IANS): The pandemic continues to affect state finances with first quarter revenue and expenditure numbers pointing out that a full economic recovery is still a long road ahead.

According to the fiscal data reported by the Comptroller and Auditor General (CAG) for 19 state governments for Q1 FY22, the states' combined revenue receipts in that quarter were only 2 per cent higher than the pre-Covid level of Rs 4.3 lakh crore.

Simultaneously, the revenue spending of the 19 state governments increased by 14 per cent to Rs 4.9 lakh crore in Q1 FY22 from the pre-Covid level of Rs 4.3 lakh crore, possibly reflecting higher social sector spending amid the second wave of Covid-19.

The 19 states' combined revenue balance has, thus, slipped into a deficit of Rs 50,000 crore in Q1 FY22, in contrast to the small surplus of Rs 10,000 crore in pre-Covid Q1 of FY20. Moreover, their fiscal deficit has nearly doubled to Rs 1.1 lakh crore in Q1 FY22 from the pre-Covid level of Rs 60,000 crore in Q1 FY20.

According to an analysis by ICRA, varied recovery in the revenues and expenditures of 19 state governments in the April-June quarter has resulted in states' combined fiscal balances reporting a deterioration, relative to the pre-Covid level.

ICRA Chief Economist Aditi Nayar said that though the recovery in revenue receipts of states was led by non-tax revenues, their own taxes and Central tax devolution trailed the level witnessed in Q1 FY20. Moreover, the revenue spending of the 19 state governments increased by a sharper 14 per cent in Q1.

"Accordingly, the 19 states' combined revenue balance has slipped into a deficit of Rs 0.5 trillion in Q1 FY2022, in contrast to the small surplus of Rs. 0.1 trillion in Q1 FY2020," Nayar said.

The positive developments on the fiscal front for the states has come from an increase in capital expenditure. Given the permission to continue construction activities with some restrictions, the capital spending by the 19 state governments recovered to Rs 60,000 crore in Q1 FY22, exceeding the pre-pandemic level of Q1 FY20 by a heartening, albeit mild, 2.6 per cent.

ICRA noted that the state's own tax revenues (SOTR) in Q1 FY2022 trailed the pre-Covid levels by 3 per cent, on account of stamps and registrations (S&R), and excise duty collections, even as sales tax and state goods and services tax (SGST) exceeded their pre-Covid levels.

Reflecting the stringent nation-wide lockdown, the combined S&R collections of the 19 state governments had contracted by 61 per cent in Q1 FY2021. Reflecting the low base and benefitting from attractive home loan rates and cuts in stamp duty rates by some of the states in the sample, S&R collections doubled to 101.7 per cent to Rs 21,600 crore in Q1 FY22 from Rs 10,700 crore in Q1 FY21. However, this remained a substantial 21.3 per cent lower than the pre-Covid level of Rs 27,400 crore in Q1 FY20, revealing the continued impact of the pandemic on states' finances.

Similarly, excise duty collections had recorded a 40 per cent contraction in Q1 FY21, amid the nation-wide lockdown. In all, 14 of the 19 state governments in ICRA's sample had increased the rate of excise duty on liquor consumed in their state from June 2020 onward. Benefitting from this, the combined excise duty collections rose by 59.3 per cent to Rs 33,100 crore in Q1 FY22 from Rs 20,800 crore in Q1 FY21. However, excise duty collections in Q1 FY22 were a mild 3.6 per cent lower than the Rs 34,400 crore collected in Q1 FY20, with the localised restrictions dampening consumption in the first quarter of the ongoing fiscal.

On a positive note, grants from the Centre in Q1 FY2022 exceeded the pre-Covid level by a sharp 46 per cent, on account of front-loading of the Finance Commission-recommended grants in Q1 FY2022, which includes a higher monthly quantum of revenue deficit grants compared to FY2020. Moreover, state own non-tax revenues in Q1 FY22 were 17 per cent higher than Q1 FY20.

The 19 state governments in ICRA's sample are Chhattisgarh, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Nagaland, Odisha, Punjab, Rajasthan, Sikkim, Tamil Nadu, Telangana, Tripura, Uttar Pradesh, and Uttarakhand.