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MOSL: ECOSCOPE-How are states behaving under COVID-19? Tight financial position demands relaxations from the center

** Public health and sanitation, hospitals and dispensaries are part of the 61 items that come under the State List or List-II in Schedule Seven to the Constitution of India. It is not surprising then that states are at the forefront in the fight against the Coronavirus (COVID-19) pandemic. Since public health is a state subject, the economic capacity of the state does play an important role in providing apt health services and facilities to its citizens. Therefore, in this note, we look at the general trend in fiscal spending on public health by various Indian states and their fiscal position.

** On an aggregate basis, all states spent only INR1.3t (or 0.73% of GDP) on medical and public health in FY18, amounting to ~4.5% of total spending by states. A study of 22 states and union territories (UTs) confirms that Delhi (DL) tops the list with the highest share of health spending (~12.5% of total spending), followed by Assam (AS) at 6.6%. Telangana (TS) and Andhra Pradesh (AP) spend the least (~3.5% of total spending) on health sector.

** Further, the fiscal position of 18 states suggests that eight states have budgeted for a 3% fiscal deficit of the GSDP (Gross State Domestic Product) or higher for FY21, only seven states have targeted a surplus on the revenue account while 10 states have outstanding liabilities of 24% of the GSDP or more for this year. What's more, for 10 states, the committed expenditure (interest, salary and pension payments) amounted to more than 53% of the revenue receipts, as against the average of all states at ~49%.

** As per our assessment, Punjab (PB), Rajasthan (RJ), Kerala (KL) and Himachal Pradesh (HP) are the four most fiscally-stressed states. Three other states - West Bengal (WB), Uttarakhand (UK) and Uttar Pradesh (UP) - also have a tight fiscal position. In contrast, Maharashtra (MH), which is the worst affected by COVID-19, had one of the best financial positions; MH had the lowest fiscal deficit and outstanding liabilities in FY19, second only to Odisha (OD).