After Saturday’s marathon video conference between the PM and CMs of various states, it’s almost clear there is going to be an extension of lockdown. If this is the most important takeaway of the meeting, the wide-ranging suggestions on the way forward to gradual resumption of economic activities and most importantly, the issue of fund crunch raised by the states are also that which had attracted much attention.

Standing at the end of the first phase of the lockdown, it will be quite difficult to quantify the exact economic loss the country will have to bear since it will take time to make precise calculations. But, that it will run into substantial amounts is beyond any doubt and it is based on this unprecedented and unavoidable reality, the states, quite legitimately had asked the Centre to extend financial aids. The lockdown has already exerted an all-pervasive impact on the economy and a 14-day extension will further drain the states’ exchequers to such dreadful levels that it will require an exceptionally long tenure to get back to shape. As an example, the woes highlighted by Telengana during the meeting can be taken as a representative one and will serve the purpose in understanding how much tight the situation is for the states. In normal times when Rs 40000 cr is the monthly revenue earnings there, after lockdown imposition, it has nose-dived to one-tenth. For others including the Northeast states, no doubt it will be more or less of the same pattern. So far as economic stimulus is concerned, a 1.7 lakh cr has arrived from the Centre which is not even 1 % of the current GDP and the demand to raise it to at least 5 % of the GDP should not sound irrational, given the extent of economic loss that is only mounting. With all available sources of revenue already chocked due to the lockdown, delay in release of GST payouts by the Centre is further leading the states to extreme helplessness and as a result, there are fears that the foremost duty of the moment which is to keep the Covid-19 fighting alive might not be jeopardised due to financial limitations.

It must be taken into account that the economy was already in a grip of slowdown before the onset of corona mayhem and in economic terms the situation can best be described as a “worst-case scenario.” To pull the economy out the mess and to honour the much-hallowed principle of ‘cooperative federalism’, a break must be taken from the usual theory-driven pattern of policy making such as sticking to FRBM Act norms etc.

The states' finances  are in dire straits and Centre must bail them out.