With business activity and consumption set back by Covid-19 cases, the state government’s latest economic forecast has projected 16.4 per cent contraction in the state’s economy in terms of gross value added for the year ending March 2021.
“The growth is expected to contract in 2020-21. In terms of Gross State Value Added or GSVA, the economy will likely see 7.4 per cent plunge in the October-December quarter from a year ago. To make matters worse, the number will only worsen further with demand remaining subdued. The state’s GVA will shrink by 16.4 per cent by the year end,” a senior government source said.
On Monday, the state’s finance department made a presentation on its latest projections on the state’s economy to Chief Minister Uddhav Thackeray and some senior ministers of his Cabinet, sources said.
In simple terms, GSVA represents the supply side of the economy. It gives the rupee value of goods and services after deduction of the cost of inputs and raw materials and is the main parameter to gauge the state’s overall economic output.
Contending that sudden micro lockdowns had impacted the normal functioning of firms in the supply chain and hit the small and medium enterprises the most, the government report has projected that with the exception of agriculture, all other sectors including construction, real estate, mining and services, will clock lower nominal growths (in GSVA terms) in 2020-21 as compared to the previous year. “The industry and service sectors will continue to remain under pressure due to demand contraction,” the report has forecasted.
It further said the rising unemployment and job losses were threatening the revival of the economy. The state’s unemployment rate has climbed by 2.3 percentage points from 3.9 in July to 6.2 in August amid the fresh wave of infections being recorded from all across the state. In rural Maharashtra, the end of the kharif sowing season has coincided with loss of work under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) resulting in labour losses.
The agriculture sector, which contributes around 11 per cent to the state’s gross state domestic product, has weathered the pandemic recession and looks set to register a strong growth. With the kharif sowing aided by a good monsoon spell, the government is banking on a bumper kharif crop.
But subdued consumption activity remains a big concern.
In an indicator of the weakness of the domestic economy, the state’s GST collection has declined by a staggering Rs 25,480 crore for April-September period, as compared to the corresponding last year. While Rs 58,186 crore was collected between April-September 2019, this year’s collections have been to the tune of Rs 32,706 crore, said a senior official, adding the state also has a shortfall of Rs 22,435 crore in GST dues from the Centre to deal with.
Another economic indicator denoting weak consumption demand is a sharp decline in non-tax revenue collections which have witnessed a near 73 per cent fall year-on-year from Rs 6,381 crore (April-Sept, 2019) to Rs 1,743 crore (April-September, 2020). “The total revenue growth between April-September has declined by 34 per cent as compared to last year,” the report states.
Amid the sharp drop in income collections, state’s committed revenue expenditure has continued to burden the state exchequer, forcing the state to apply brakes on development spend and borrow Rs 52,000 crore to meet the salary bill. “The borrowing, so far, this year is already 259 per cent higher than last year,” the report states.
Other macro indicators, including electricity consumption, vehicle registrations, etc, have also seen subdued growth, indicating the lack of adequate demand, an official added. “By all indications, the recovery is likely to be painful and gradual as efforts towards the reopening the economy is confronted with a flare-up of cases. With the lockdown relaxation, Maharashtra economy is expected to gradually recover in the coming months. The festival season in October and November is expected to revive demand to a certain extent,” the report mentions.
Centre releases Rs 3,080 crore in GST compensation cess to state
Maharashtra on Tuesday received Rs 3,080 crore in compensation cess from the Centre for revenue losses. The compensation requirement of the state due to shortfall in GST revenues between April and August is Rs 22,435 crore.
As reported by The Indian Express earlier, the state government has reluctantly indicated its willingness to borrow another Rs 10,500 crore through a specially facilitated Reserve Bank of India loaning window to bridge the shortfall. The Centre has also hinted at extending the surcharge on taxes on luxury goods, including cars and tobacco products, to help states repay these bridge loans.
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