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Friday,14-May-2021

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Fiscal deficit of states to hit peak of Rs 8.7 lakh cr as tax collections slide

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Tax. (IANS Infographics)

The Covid pandemic-induced lockdown and consequent slump in economic activity will hit tax collections of states and result in a near four-fold expansion in their revenue deficits this fiscal, year-on-year, ratings agency Crisil said in a report.

With this, the states’ aggregate gross fiscal deficit (GFD) will not only get expanded to an all-time high of Rs 8.7 lakh crore, or 4.7 per cent of GSDP, but also skew its composition towards revenue deficit which is relatively less value-accretive towards future tax potential, the report said.

Though tax collections are expected to improve slowly with improving economic outlook, higher interest burden because of high debt funding of this year’s GFD, coupled with sticky revenue expenditures, may keep revenue deficits high for states and GFD composition skewed over the next 2-3 years. This will, in turn, increase the credit risk for states.

It may be noted that the Centre had already given extra leeway to states this year to borrow to meet all expenditure requirements. An additional borrowing limit of 2 per cent over and above 3 per cent of gross state domestic product (GSDP) already allowed had been provided to states. This has already pushed up debt burden on states.

A CRISIL Ratings study of 18 states, which account for 90 per cent of aggregate gross state domestic product (GSDP), indicates as much.

Says Manish Gupta, Senior Director, CRISIL Ratings Ltd, “Composition of GFD, apart from its level, is one of the critical indicators of credit quality of states. Higher contribution of capital expenditure (capex) in a state’s GFD composition is viewed positively as it supports capital formation, which improves the state’s tax potential. In this fiscal, revenue deficit of states would contribute 70 per cent of GFD, sharply higher than the average 15 per cent seen over the past five fiscals.”

That is because of 15 per cent year-on-year decline in revenue this fiscal. Revenue expenditures may also remain sticky as these are either committed (related to salaries, pension and interest costs), making it difficult to cut, or have been necessitated by the pandemic (such as grants-in-aid, medical and labour welfare related expenses). High revenue deficit will also compel states to moderate their capex to remain within fiscal borrowing limits, thereby aggravating the GFD skew.

To fund this expanded and skewed GFD, states are likely to borrow more this year. This will increase their indebtedness, but not contribute much towards future tax potential. We expect revenue collections to – at best – reach close to pre-pandemic levels next fiscal, factoring in unlocking that began in July 2020 and our forecast of real GDP growth of 10 per cent for India next fiscal, the report said.

Ankit Hakhu, Director, CRISIL Ratings Ltd, said “The rising interest obligations due to higher indebtedness coupled with modest revenue collections will weaken interest cover of the states to 5-6 times over the medium term from 7.7 times in fiscal 2020. Further, while states’ capex is expected to rise next year within the available fiscal space, its impact on tax potential will only be visible in subsequent years.”

Meanwhile, high and sticky revenue expenditures will continue to skew the GFD composition, with revenue deficit contributing to 30-40 per cent of GFD over next few years, higher that the average of fiscals 2016-20. This skewed GFD composition, along with weak interest cover, will constrain the credit outlook for the states.

A strong and sustained revival in tax collections going forward and ability of states to step up capex to rebalance the composition of GFD will remain key monitorables.

GFD is primarily composed of capex, net lending and revenue deficit.

Business

Blue Dart Med-Exp to test UAS for vax deliveries

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Blue-Dart

Logistics company Blue Dart, part of the Deutsche Post DHL Group (DPDHL), has formed Blue Dart Med-Express Consortium with the mission of revolutionizing the delivery of vaccines and emergency medical supplies to the remotest parts of India with Drones amid the surging second wave.

Blue Dart Med-Express Consortium is part of the ‘Medicine from the Sky’ project in collaboration with the Government of Telangana, World Economic Forum, Niti Aayog and Healthnet Global.

The Ministry of Civil Aviation (MoCA) has granted the project with necessary exemptions and rights to fly drone flights on an experimental basis in Telangana.

The aim is to assess an alternate logistics route in providing safe, accurate and reliable pickup and delivery of health care items from distribution centre to specific location and back.

Blue Dart Med-Express Drone flights will deploy an immersive delivery model to optimize the current healthcare logistics within Telangana. The model will enable deliveries from district medical stores and blood banks to Primary Health Centers (PHCs), Community Health Centres (CHCs), Blood Storage Units & further from PHCs/CHCs to Central Diagnostic laboratories.

Balfour Manuel, Managing Director, Blue Dart said, “It’s been over a year and our battle against COVID-19 continues to unfold new challenges that need solutions in real-time. The pandemic has taught each one of us the importance of logistics and the need for a tech-led supply chain infrastructure. As an organization Blue Dart has always been surrounded with the technology of the future. It is this ability that has helped us to not only withstand the pandemic but thrive with growth. While we reach out to over 35,000 locations across the country, the current situation calls for a much deeper penetration of vaccines.”

Commenting on Blue Dart’s experiment with Drone flights for Beyond Visual Line of Sight delivery of vaccines Ketan Kulkarni, CMO & Head – Business Development, Blue Dart says, “The consortium aims at enabling safer, efficient and cost-effective Drone delivery flights. With efficient systems in place, it can help reduce the current logistics cost, making the healthcare logistics faster and efficient. We are delighted to be granted the rights to commence operations and this is definitely the need of the hour. Mankind is witnessing the worst time and Blue Dart is committed to giving back to the society in which it operates and will always be ready to take one step forward.”

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Business

Fuel prices unchanged on Thursday

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Petrol

Fuel retailers spared consumers of any further increase in fuel prices by keeping retail prices of petrol and diesel unchanged on Thursday.

Accordingly, petrol continues to cost Rs 92.05 per litre and diesel Rs 82.61 up in Delhi.

Across the country as well the petrol and diesel price prices remained static on Thursday but its actual retail prices varied depending on the level of local levies in respective states.

In Mumbai, regular petrol now comes for Rs 98.36 a litre just few days away from crossing the historic level of Rs 100 per litre.

Petrol prices in some states including Rajasthan, Madhya Pradesh and in some places in Maharastra have breached the Rs 100 per litre mark while premium petrol has been hovering above that level for some time now.

Before Thursday’s price hold, fuel prices increased for three consecutive days this week up to Wednesday. Petrol and diesel prices also increased on four consecutive days last week

Petrol prices have increased by Rs 1.50 a litre Delhi in May in the seven increases so far. Similarly, diesel prices have risen by Rs 1.88 per litre in capital this month.

IANS had written earlier that OMCs may begin increasing the retail price of petrol and diesel post state elections as they were incurring losses to the tune of Rs 2-3 per litre by holding the price line despite higher global crude and product prices.

OMCs benchmark retail fuel prices to a 15-day rolling average of global refined products’ prices and dollar exchange rate. In the last fortnight global oil prices have hovered in $66-67 a barrel range higher than the levels when petrol and diesel prices were last revised. Crude prices have jumped around $ 69 a barrel now.

With global crude prices at around $ 69 a barrel mark, OMCs may have revise fuel prices upwards again if there is any further firming up.

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Business

RAI seeks capital support for retail industry amid pandemic

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Reliance-Retail

Retailers Association of India (RAI) has urged the government to take steps for capital infusion into the retail industry with ECLGS benefits and loan moratorium.

Speaking about the state of the Indian Retail Industry, Kumar Rajagopalan, CEO, RAI, said: “The retail industry in India has been in a perpetual paradox ever since the first set of restrictions began last year in March 2020. The businesses and the workforce in retail need to be cushioned by the government or the local authorities to ease off their hardships.”

He further said that two most important and immediate steps that can prevent this industry from collapsing are to prioritise vaccination of the last mile workers and to urgently provide financial support.

RAI noted that as the days of the lockdown drag on, it is getting increasingly difficult for retailers to retain employees and to keep their businesses afloat. Retailers need to pay salaries, minimum electricity, rentals, property taxes etc, even if the businesses are shut due to the lockdown.

The cash inflow of the industry has come to a standstill, while the fixed operating cost remains intact.

The immense financial stress faced by the retail sector will adversely impact both livelihood and the financial institutions exposure to the sector as retailers start to become insolvent. Millions of MSME suppliers too get no payment from the industry participants.

RAI has recommended that the Ministry of Finance and the Reserve Bank of India step in to bring some relief to the mounting stress on the retail business in the wake of second wave of Covid -19.

It noted that corporate retail outlets is one of the 26 sectors, selected by the Kamath panel under the ‘Resolution Framework for Covid-related Stress’. While this was mentioned in the announcement of ECLGS 2.0 it has not been clarified in the notification which announced ECLGS 3.0, it said.

“This needs to be clarified and ECLGS funds made available to the retail sector immediately. Availability of additional funding to eligible retail businesses will go a long way in contributing to retail revival and protecting jobs,” it said.

It further sought a moratorium on principal and interest for six months for the 26 stressed sectors.

RAI also asked the government and the RBI to mandate banks to give ad-hoc working capital loans of 30 per cent more than current limits so that critical payments like salaries and wages can be made, among other recommendations.

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