Indian states’ fiscal outcomes are likely to vary considerably this year depending on the impact of COVID-19 infections, restrictions and vaccinations on the local economy, rating agency ICRA said in a note on Thursday. ICRA noted that state governments had projected some ”welcome fiscal consolidation” for the current 2021/22 budgets after the pandemic-induced disruption of 2020/21.

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”However, most of these budgets were published before the second surge in COVID-19 infections, which has reignited uncertainty regarding the growth and fiscal outlook,” the agency said.

Most Indian states have imposed restrictions although there has been no national lockdown imposed as in 2020. The country reported 211,298 new infections on Thursday, still the world’s highest daily rise, but nearly half the daily infections it recorded earlier this month.

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ICRA projects combined states’ goods and services tax (GST) collections at 6.1 trillion rupees in the current fiscal year, below projected revenues of 8.7 trilion rupees, and expects a large GST compensation requirement of 2.65 trillion rupees. Only around 38 percent of this requirement will be met with the compensation surcharge imposed on the GST, ICRA said.

”If the balance 1.65 trillion rupees is to be met through back-to-back loans as was the case in 2020/21, expediting the same could alleviate the states’ anticipated revenue crunch over the next two months,” ICRA’s chief economist Aditi Nayar said.

The central government had offered soft loans to states to tide over cash shortages during the pandemic in 2020 while the GST Council is scheduled to meet on Friday after a gap of over seven months.