Rs. 15000 Crore Sanctioned to States
- 10 Apr 2020
- 4 min read
Why in News
Recently, the Central Government has sanctioned ₹15,000 crore to States under the India Covid-19 Emergency Response and Health System Preparedness Package.
- The package is a 100% centrally-funded scheme and the funds will be provided under a mission mode approach.
- Amount of ₹7774 crore will be utilised for immediate Covid-19 Emergency Response and rest will be used for medium-term support (1-4 years).
- The amount of ₹4113 crore has already been disbursed to all the States and Union Territories (UTs) dealing with the emergency response to the pandemic.
- Mounting emergency response through development of diagnostics and dedicated treatment facilities.
- Strengthening pandemic research, community engagement, risk communication and implementation
- Management, capacity building, monitoring and evaluation.
- As per the evolving conditions, the government is authorised to re-appropriate resources among various components of the package and among various implementation agencies like the National Health Mission, Central Procurement, Railways, Department of Health Research/Indian Council for Medical Research (ICMR), National Centre for Disease Control.
- The States can use the funds for:
- Centralised procurement of essential medical equipment and drugs required for treatment of infected patients (Personal Protective Equipment, isolation beds, ICU beds, ventilators, etc.)
- Strengthen and build health systems to support prevention and preparedness for future disease outbreaks.
- Setting up of laboratories and bolstering surveillance activities, biosecurity preparedness, pandemic research and proactively engage communities.
- Conducting risk communication activities.
Reasons for Strained State Finances
- Fall in the revenues due to the lockdown and higher spending due to the coping measures against novel coronavirus pandemic.
- There are no buyers for state bonds, and goods and services tax collections are down, revenues from fuel, liquor, stamp duty and registration charges are also down.
- At the same time, the states are incurring bulk of the on-the-ground expenditures on containing Covid-19.
- States are currently mandated to keep their fiscal deficits within 3% of Gross Domestic Product (GDP).
- A one percentage point relaxation will give them latitude to borrow an extra ₹200,000 crore or so, but this will not really work in a “broken” bond market as investors demand higher interest rates.
- Simply put, the borrowing costs for states have gone up by almost one percentage point in less than a month’s time.
- Few states wanted to borrow around ₹37,500 crore through sale of bonds, with tenures ranging from two to 15 years, conducted on the Reserve Bank of India’s (RBI) auction platform.
- However, they were able to mobilise only ₹32,560 crore.
- Since 1st April, the central bank has increased the existing ways and means advances limits (for states to borrow at the repo rate) by 30%, apart from allowing them to be in overdraft for 21 continuous working days, from the earlier 14 days.