The overall impact would be much higher as India was under a complete lockdown for

nearly 80 days starting March 25. Now, even as the nationwide lockdown has ended,
economic activity has not completely picked up as some areas continue to be shut
due to a higher number of Covid-19 cases, and as people in other regions continue
to stay indoors to avoid contracting the virus.

In such a situation, several Indian states are at loggerheads with the Modi
government over the sharing of tax revenues and compensations. Since the pandemic-
related lockdowns have caused a loss of revenue for the Modi government, too, the
situation might worsen.

“If the centre is not able to collect enough revenue or misses its target, it will
have a direct bearing on states. The funds budgeted for the states will no longer
be available,” Balakrishnan of Ashoka University said.

Falling short
India’s tax collection numbers – post the spread of pandemic – tell a story of
dwindling revenue. The collection of Goods and Services Tax, which subsumes several
taxes, hit a record low in April when the nationwide lockdown was at its peak.

After April, the collections have improved. But this should be taken with a pinch
of salt. While the numbers do signal a revival in business activity to some extent
as curbs were eased, they were also buoyed by deferred taxes, stated Mumbai-based
Centrum’s economic research report.

But blaming low revenue collection on lockdown merely would be unfair.

Even before the pandemic drove a wedge into the finances of the states, the
economic growth was already on the downward spiral, and states’ fiscal woes had
already deepened.