As of April 28, Odisha has 118 cases of COVID-19.  Of these, 37 have been cured, and 1 person has died.  In this blog, we summarise some of the key decisions taken by the Government of Odisha until April 28 for containing the spread of COVID-19 in the state.

 image

Before the lockdown

On March 24, the state government enforced state-wide lockdown.  Before enforcing it, the state government took several measures for preventing the spread of COVID-19 besides declaring it as a State disaster on March 13.   Some of the key measures are summarised below.

Health Measures

The Odisha COVID-19 Regulations, 2020: On March 18, the Government issued The Odisha COVID-19 Regulations, 2020.  These regulations are valid for a year.  As per these regulations, both government and private hospitals must have dedicated COVID-19 isolation facilities.   

Foreign returnees: On March 16, the Government issued an order for foreign returnees to: (i) mandatorily register on COVID portal within 24 hours of their arrival (ii) home quarantine themselves for 14 days.  An incentive of 15,000 rupees will be provided for registration and completing home quarantine. 

Prisons: On March 17, the Government released precautionary measures to be taken in prisons by authorities and inmates.  Newly admitted prisoners should be quarantined in different wards for a week. From March 18, e-Mulakat was allowed in District headquarters jails.

Private Health Care Facilities: On March 19, the Department of Health and Family Welfare issued guidelines for Private Health Care Facilities.  The guidelines specify the hospitals to have a COVID-19 specific counter with separate entrance, regulating the entry of visitors, and infection control measures.

Media: On March 21, the Department of Health and Family Welfare issued guidelines to the media not to publish any information or interview the infected persons, their relatives, doctors and support medical staff of them.

Increasing the health workforce in the state: The Department of Health and Family Welfare issued an order on March 23 for the engagement of Staff Nurses and other Paramedics on a short term basis.  The hired employees will be provided with additional incentives. 

Administrative Measures

State crisis management committee: On March 4, a State crisis management committee was formed to take policy decisions regarding cluster containment.

Prohibiting strikes of employees: On March 21, the government issued an order prohibiting any strikes by employees engaged in the supply of drinking water and sanitation in urban local bodies.  The order is valid for six months.

Public and private establishments: On March 21, the government requested all public and private establishments not to terminate the employees or reduce their wages.

Movement Restrictions

Closure of commercial establishments: On March 13, the Department of Health and Family Welfare ordered for the closure of cinema halls, swimming pools, gyms and educational institutions except for holding examinations until March 31. 

Suspension of bus services: On March 23, the Department of Health and Family Welfare issued an order suspending intra-state bus services from March 24 and City bus services in all urban local bodies from midnight of March 23.

Lockdown in few districts:  On March 21, the government announced lockdown in five revenue districts and eight towns of the state until March 29.  The lockdown involved (i) suspension of public transport services (ii) closure of all commercial establishments, offices, and factories (iii) banning the congregation of more than seven people at any public place.

During the lockdown

With two cases in the state, on March 24, the government extended the lockdown to the entire state till March 29.  Establishments engaged in the supply of essential goods and services were excluded from this lockdown.

This was followed by a nation-wide lockdown enforced by the central government between March 25 and April 14, now extended till May 3.   Before the extension announced by the central government, the state government extended the lockdown in the state till April 30.

Starting from April 20, the central government allowed certain activities in less-affected districts of the country.  Further, on April 24, the Ministry of Home Affairs allowed the opening of certain categories of shops with a limited workforce.

Welfare Measures

The Odisha government announced several welfare measures to address the difficulties being faced by people during the lockdown.  Key measures include:

Temporary shelter for migrants: On March 28, the government ordered District collectors and Municipal Commissioners to use closed down schools and hostel buildings as temporary shelters for the migrants. 

Provision of food in rural areas: On March 30, the government decided to provide hot cooked food for needy people in rural areas at affordable prices.  Two meals per day will be provided at Rs 60 for adults and Rs 45 for children per day.

Compensation to family members: The Odisha government will be giving compensation of fifty lakh rupees to the family members of the employees who may die due to COVID-19 and are not covered under insurance scheme of the central government.

Administrative Measures

Ordinances: As the State Assembly is not in session, the government promulgated two ordinances.

  • The Epidemic Diseases (Amendment) Ordinance, 2020: On April 7, the government promulgated an ordinance to deal with COVID-19 spread.  The Ordinance amends Section 2 and 3 of the Epidemic Diseases Act, 1897.  The Act provides for the prevention of the spread of dangerous epidemic diseases.  The ordinance amends the act to increase the penalty for individuals committing the offences under the act.  

Setting up control rooms: On March 26, the Home department set up a round the clock control room for monitoring the issues regarding the implementation of lockdown and stranded Odias in various parts of the country.  On March 27 and 28, three control rooms were set up in Bhubaneswar and Delhi for the migrant labourers.

Deferment of salaries: The government announced 70% deferment of salaries of all the elected representatives of the state and 50% deferment for the employees of All India Services such as IAS and IPS.

Implementation of MGNREGS: On March 31, the Department of Panchayati Raj and Drinking Water issued an advisory for the implementation of MGNREGS.  Key measures include: (i) Job cards will be provided to people interested in doing unskilled works, (ii) Individual works up to 5 persons is allowed (iii) Hand wash and safe drinking water should be provided at the worksites.

Essential Goods and Services

  • On March 25, the government authorised certain authorities to issue passes for the free movement of essential goods.

  • For facilitating the movement of goods, the government allowed the opening of roadside dhabas, and vehicle repair shops situated on Highways.  These should be located outside of towns and cities.  

Health Measures

Amendments to Odisha COVID-19 regulations, 2020

  • On April 3, the government added following provisions to the Odisha COVID-19 regulations, 2020: (i) additional duties and responsibilities of hospitals and local bodies such as infection control measures in hospitals among others. (ii) state government or empowered officers can declare any government or private hospital as COVID hospital. 

  • On April 9, wearing masks were made compulsory for the people stepping out their houses and were included in the regulations.

  • On April 16, the government included the ‘prohibition of spitting in any form in public places’ into the regulations.

Short term engagements: On March 27, the government invited senior professionals having expertise in various sectors such as health care management, international logistics, and charities to work as Honorary Advisors to Government on a voluntary basis.  The government issued an order for engagement of microbiologists on a short term basis.

Training of MBBS students- On March 28, the government decided to train the MBBS students of all medical colleges studying 7th, 8th and 9th semesters and deploy them if there is a rise in the number of cases in future.  Training of government establishments was taken up in the first phase. Private colleges were also requested to train doctors and students simultaneously. 

Additional resources: On April 6, the State Executive Department authorized the Principal Secretary, Department of Health to requisition the services of anybody having expertise in public health care management.  When the need arises, the government can use the services of healthcare professionals such as doctors, nursing staff from government or private organisations to assist the state government.  

Support to personnel fighting the Pandemic: On April 22, the government announced certain measures to support the personnel fighting COVID-19 in the state. They are

  • The Government will invoke the National Security Act, 1980 against the individuals causing violence to any member of the medical community such as doctors, nurses, and health workers. 

  • While on duty, if any government employee dies due to COVID-19, the family will get the salary until the retirement date of the deceased employee.

  • The cremation of the individuals dying due to COVID-19 on duty will be honoured by the state as usually accorded to the martyrs. 

Handling the return of migrants from other parts of the country: On April 19, the Revenue and Disaster Management department issued an advisory to Gram Panchayats and Urban Local Bodies for handling the influx of migrants from other parts of the country, once the lockdown is over.  The advisory has the following steps.

(i) All local bodies should have registration facilities.  People returning from other states should register through their relatives or family members.

(ii) All persons arriving from various states will be quarantined for 14 days.

(iii) An incentive of 2,000 rupees will be provided to the people for completing the quarantine period in the quarantine facilities.

For more information on the spread of COVID-19 and the central and state government response to the pandemic, please see here.

Later this week, the GST Council will meet to discuss the issue of GST compensation to states.  The central government is required to compensate states for any loss of revenue they incur due to GST.  The Centre must pay this compensation on a bi-monthly basis, but over the past one year these payments have been delayed by several months due to lack of funds.  The COVID-19 pandemic and the consequent lockdown have amplified the issue manifold, with both centre and states facing a revenue shortfall, limiting the ability of the Centre to meet states’ compensation needs.

Why is the Centre required to compensate states for GST?

With GST implementation in 2017, the principle of indirect taxation for many goods and services changed from origin-based to destination-based.  This means that the ability to tax goods and services and raise revenue shifted from origin states (where the good or service is produced) to destination states (where it is consumed).  This change posed a risk of revenue uncertainty for some states.  This concern of states was addressed through constitutional amendments, requiring Parliament to make a law to provide for compensation to states for five years to avoid any revenue loss due to GST.

For this purpose, the GST (Compensation to States) Act was enacted in 2017 on the recommendation of the GST Council.  The Act guarantees all states an annual growth rate of 14% in their GST revenue during the period July 2017-June 2022.   If a state’s GST revenue grows slower than 14%, such ‘loss of revenue’ will be taken care of by the Centre by providing GST compensation grants to the state.  To provide these grants, the Centre levies a GST compensation cess on certain luxury and sin goods such as cigarettes and tobacco products, pan masala, caffeinated beverages, coal, and certain passenger vehicles.  The Act requires the Centre to credit this cess revenue into a separate Compensation Fund and all compensation grants to states are required to be paid out of the money available in this Fund.

How much compensation is provided to states?

For 2018-19, Centre gave Rs 81,141 crore to states as GST compensation.  However, for the year 2019-20, the compensation requirement of states nearly doubled to Rs 1.65 lakh crore.  A huge increase in requirement implies that states’ GST revenue grew at a slower rate during 2019-20.   This can be attributed to the economic slowdown seen last year, which resulted in a nominal GDP growth of 7.2%.   This was significantly lower than the 12% GDP growth forecast in the 2019-20 union budget (Figure 1).

Figure 1:  GDP growth rate (2017-21)

 image

 

 

 

 

 

 

 

 

Sources:  Union Budget Documents; MOSPI; PRS.

In 2019-20, the gross GST revenue (Centre+states) increased by just 4% over the previous year.  Despite this, due to the compensation guarantee, all states could achieve the growth rate of 14% in their GST revenue – much higher than the overall growth in GST revenue.  However, there was a delay in payment of compensation from Centre.   More than Rs 64,000 crore of the compensation requirement of states for 2019-20 was met in the financial year 2020-21.

What led to a delay in payment of compensation to states?

In 2019-20, the delay in payment was observed due to insufficient funds with Centre for providing compensation to states.  These funds are raised by levying a compensation cess on the sale of certain goods, some of which were affected by the economic slowdown.  For instance, in 2019-20, sales of passenger vehicles declined by almost 18% and coal offtake from domestic coal companies reduced by nearly 5%, over the previous year.  As a result, cess collections registered a growth of just 0.4% in 2019-20 (Figure 2), against the 104% increase seen in the compensation requirement of states.  This resulted in a shortfall of funds of nearly Rs 70,000 crore.

Figure 2:  Cess collections insufficient for providing compensation

image

 

 

 

 

 

 

 

 

Note:  In 2017-18, GST was implemented for only nine months.  Compensation amount shown may not match with the amount released in that financial year because of delay in releases.

Sources:  Union Budget Documents; Ministry of Finance; GST Council; Lok Sabha Questions; PRS.

How can compensation be paid to states if cess collections are insufficient?

The shortfall in collections for 2019-20 was met through: (i) surplus cess collections from previous years, (ii) partial cess collections of 2020-21, and (iii) a transfer of Rs 33,412 crore of unsettled GST funds from the Centre to the Compensation Fund.   These unsettled funds are GST collections, generated in 2017-18 from inter-state and foreign trade, that have not yet been settled between centre and states.

In the 2020-21 budget, the Centre has estimated a 10% growth in nominal GDP.  However, due to the impact of COVID-19 and the lockdown, the actual growth in 2020-21 is likely to be much lower.  In such a scenario, states’ GST revenue would also be much lower than expected, thus leading to a higher compensation requirement.  However, the ability of Centre to pay compensation depends on the cess collections, which are also getting impacted this year.  For instance, cess collections during the period Apr-Jun 2020 have been 41% lower in comparison to the same period last year.  Moreover, of the Rs 14,482 crore collections made during this period, Rs 8,680 crore has been likely used up for paying compensation for 2019-20.

Note that under the GST (Compensation to States) Act, 2017, Centre can provide compensation to states only through the money available in the Compensation Fund.   The Union Finance Minister, in her budget speech in February 2020, clarified that transfers to the Fund would be limited only to collections of the GST compensation cess.  Despite a shortfall of money in the Compensation Fund, the Centre is constitutionally obligated to meet states’ compensation requirement for a period of five years.

Various measures have been suggested to address the issue of shortfall in the Fund, either by reducing the compensation payable to states (which would require Parliament to amend the Act following GST Council’s recommendation) or by supplementing the funds available with Centre for providing compensation to states.   The Act allows the GST Council to recommend other funding mechanisms/ amounts for credit into the Compensation Fund.  For example, one of the measures proposed for meeting the shortfall involves Centre using market borrowings to pay compensation to states, with the idea that these borrowings will be repaid with the help of future cess collections.  To enable this, the GST Council may recommend to Centre that the compensation cess be levied for a period beyond five years, i.e. post June 2022.

Impact on states post 2022

In 2019-20, except for a few north-eastern states, most states saw their compensation requirements increase multifold by 2-3 times, over the previous year’s figures.  Table 1 shows the compensation requirement of states for the years 2018-19 and 2019-20.  Six states (Delhi, Gujarat, Karnataka, Maharashtra, Punjab, and Tamil Nadu) accounted for 52% of the total requirement of compensation for 2019-20.  Further, in some states such as Punjab and Delhi, compensation grants form a significant share of the overall revenue receipts (20% and 16% resepctively).  

Note that states have been guaranteed compensation only for a period of five years.  After June 2022, states dependent on compensation will observe a revenue gap due to a cut in these grants coming from Centre.  States have roughly two years to bridge this gap with other tax and non-tax sources to avoid a potential loss of revenue, and a consequent fall in the size of their state budget, which could adversely affect the economy.  To what extent will such concerns be alleviated remains to be seen based on the course of action decided by the GST Council.

Table 1:  GST compensation requirement of states for 2018-19 and 2019-20 (in Rs crore)

State

2018-19

2019-20

% increase in compensation requirement

Amount

As a % of revenue

Amount

As a % of revenue*

Andhra Pradesh

0

-

3,028

3%

-

Assam

455

1%

1,284

1%

182%

Bihar

2,798

2%

5,464

4%

95%

Chhattisgarh

2,592

4%

4,521

7%

74%

Delhi

5,185

12%

8,424

16%

62%

Goa

502

5%

1,093

9%

118%

Gujarat

7,227

5%

14,801

10%

105%

Haryana

3,916

6%

6,617

10%

69%

Himachal Pradesh

1,935

6%

2,477

8%

28%

Jammu and Kashmir

1,667

3%

3,281

5%

97%

Jharkhand

1,098

2%

2,219

4%

102%

Karnataka

12,465

8%

18,628

11%

49%

Kerala

3,532

4%

8,111

9%

130%

Madhya Pradesh

3,302

3%

6,538

4%

98%

Maharashtra

9,363

3%

19,233

7%

105%

Meghalaya

66

1%

157

2%

138%

Odisha

3,785

4%

5,122

5%

35%

Punjab

8,239

13%

12,187

20%

48%

Rajasthan

2,280

2%

6,710

5%

194%

Tamil Nadu

4,824

3%

12,305

7%

155%

Telangana

0

-

3,054

3%

-

Tripura

172

1%

293

3%

70%

Uttar Pradesh

0

-

9,123

3%

-

Uttarakhand

2,442

8%

3,375

11%

38%

West Bengal

2,615

2%

6,200

4%

137%

Note:   Arunachal Pradesh, Manipur, Mizoram, Nagaland, and Sikkim did not require any compensation in 2018-19 and 2019-20.

*Revenue for the year 2019-20 does not takes into account those GST compensation grants which were payable to states in 2019-20 but were released by Centre in the year 2020-21. The percentage figures would be slightly lower if such grants are included in 2019-20 revenue.

Sources:  State Budget Documents; Ministry of Finance; Lok Sabha Questions; CAG; PRS.