THE GIST of Editorial for UPSC Exams : 13 May 2020 (Perilous state: On State finances (Indian Express))

Perilous state: On State finances (Indian Express)

Mains Paper 3: Economy
Prelims level: State finances
Mains level: Role of state finance in an economy

Context:

State finances are in a shambles.
Every single State’s, without exception, though the degree may vary.

State finances a triple whammy:

The COVID-19-induced lockdown has dealt State finances a triple whammy.
Their own revenue sources — mainly from liquor sales, stamp duty from property transactions and sales tax on petroleum products — that account for half their total revenues, have collapsed. And their expenditure such as on interest payments, social sector schemes and staff salaries remains unchanged.
They are now called upon to spend more on beefing up their health infrastructure and on COVID-19 measures, including testing, treatment and quarantining.
All of them, including the gold standard ones such as Maharashtra, Tamil Nadu and Karnataka, are now pleading for funding support from the Centre and relaxation in borrowing rules by the RBI.
The Centre has been watching silently even as some States have gone ahead and cut salaries of their employees and pension benefits to rein in expenses.
It could be argued that by seeking consecutive extensions of the lockdown, which imposes tremendous strain on not just their finances but also that of the Centre, the States are wrong in their approach.

Seeking extensions and simultaneously demanding financial support from the Centre:\

Tamil Nadu, Karnataka and Maharashtra, in their desperation, commenced liquor sales with outlets flouting all physical distancing norms.
The fear is that this could seed fresh infections. The Centre is itself not in a happy place financially. But it at least has the means to replenish its finances through conventional and unconventional means.
It appropriated almost all of .........................................

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Way forward:

The States should at least be able to borrow more. The Centre should also give States the freedom to restart economic activity based on their own assessment.
Not all States are in the same virus-spread position and within each State, not all districts are the same.
This has to be acknowledged while planning a phased lifting of the lockdown. Greater leeway in restarting economic activity will relieve some of the financial stress, not just on the States but also on the Centre.

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Prelims Questions:

Q1. With reference to the GARUD portal, consider the following statements:
1. It aims to provide fast track conditional exemptions to government agencies for COVID-19 related drone operations.
2. It is an initiative of NITI Aayog.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2