Analysis: Making virus crisis budget, India needs to spend, funds may fall short

Analysis: Making virus crisis budget, India needs to spend, funds may fall short

© Reuters. ©
Reuters.

By
Aftab
Ahmed
and
Swati
Bhat

NEW
DELHI/MUMBAI
(Reuters)

Having
fired
up
hopes
for
populist
measures
with
talk
of
delivering
a
“budget
like
never
before”,
India’s
Finance
Minister
Nirmala
Sitharaman
will
need
to
find
credible
sources
for
additional
revenue
from
a
pandemic
sickened
economy.

Government
borrowing
is
already
bumping
against
the
ceiling,
revenues
are
severely
dampened
and
the
fiscal
deficit
is
expected
to
have
ballooned
on
account
of
pandemic
spending.

“It
will
be
hard
for
the
finance
minister
to
find
resources.
But
she
will
get
some
help
from
the
economic
revival
that
will
likely
increase
some
tax
revenue,”
said
N.R.
Bhanumurthy,
economist
and
vice
chancellor
at
Bengaluru-based
B.R
Ambedkar
School
of
Economics.

“She
has
to
push
hard
for
non
tax
revenue
such
as
divestment.
The
current
year
was
a
zero
year
for
divestment.”

Stake
sales
and
privatisation
seldom
meet
targets.
The
government
has
raised
just
over
138
billion
rupees
out
of
the
2.1
trillion
rupees
($28.72
billion)
divestment
target
for
the
current
year.
It
expects
to
end
FY21
with
not
more
than
300
billion
rupees,
according
to
government
officials.

They
said,
however,
that
the
government
could
raise
over
1
trillion
rupees
from
privatisation
of
Air
India,
Bharat
Petroleum
Corp
Ltd,
Container
Corp.
of
India
and
Shipping
Corp.
of
India
in
the
first
six
months
the
fiscal
year
beginning
in
April.

Though,
finding
investors
national
carrier,
Air
India
could
be
challenging
in
these
restricted
travel,
COVID-19
times.

A
senior
government
official
involved
in
planning
for
the
2021/22
budget,
which
Sitharaman
will
deliver
on
Feb.
1,
rued
the
revenues
lost
at
the
start
of
the
current
fiscal
year,
and
doubted
they
could
be
clawed
back.

“We
need
a
big
spending
plan
but
there
are
few
avenues
of
revenue
right
now,”
the
official
told
Reuters.

India
lacks
the
option
to
raise
larger
funds
from
the
market
as
the
central
government
increased
market
borrowing
by
over
50%
to
fund
a
COVID-19
relief
programme,
a
second
official,
also
involved
in
budget
planning,
said.

Separately,
the
government
is
also
likely
to
see
a
revenue
shortfall
of
7
trillion
rupees
this
year,
which
it
may
have
to
redress
through
a
new
avenue
in
the
coming
fiscal
year.

“There
might
be
overtures
to
compensate
for
this
year’s
revenue
shortfall
by
an
increase
in
taxation
for
high
net
worth
individuals
as
well
as
sin
taxes,”
said
Radhika
Rao,
economist
at
DBS,
referencing
taxes
on
items
such
as
tobacco
and
alcohol.

A
third
official
refused
to
specify
if
the
government
will
introduce
a
COVID-tax
or
cess
but
said
they
were
looking
at
increasing
taxes
in
certain
categories
but
will
ensure
the
burden
does
not
fall
on
the
middle-income
citizens.

He
said
they
would
also
look
at
imposing
additional
or
higher
import
duties
on
high-end
electronics.

LONG-TERM
BUDGET

Sitharaman
in
an
interview
with
Reuters
in
December
said
she
plans
to
lift
spending,
otherwise
it
would
completely
undermine
a
government
relief
programme
brought
in
last
year
to
sustain
poor
families
and
small
businesses.

Addressing
a
Confederation
of
Indian
Industry
conference
last
month,
Sitharaman
also
excited
expectations
for
a
big-bang
budget
filled
with
sops
by
saying
India
was
set
to
see
a
“budget
like
never
before”.

The
government
would
like
to
use
the
budget
as
path
to
launch
three
to
four
years
of
high
growth,
said
the
third
official,
stressing
that
the
increase
in
spending
would
not
be
taken
to
unsustainable
levels.

“So,
all
the
funds
announced
would
not
be
for
this
year.
For
this
year
we
could
have
a
growth
in
expenditure
for
sure,
but
the
funds
announced
in
the
budget
would
be
for
years
ahead.”

The
government’s
fiscal
deficit
for
the
year
ending
March
is
expected
to
be
over
7%,
and
more
than
double
the
budgeted
estimate.

Given
all
the
uncertainties,
economists
reckon
the
government
has
no
alternatives
and
has
to
boost
spending.

With
a
population
of
nearly
1.4
billion,
bedevilled
by
massive
income
inequality,
India
needs
annual
economic
growth
of
over
8%
to
create
enough
jobs
for
the
millions
of
young
people
joining
the
labour
force
each
month.

It
was
falling
short
before
COVID-19
struck.
Growth
was
6.1%
in
2018/19,
before
dropping
to
4.2%
in
2019/20
as
the
pandemic
erupted
in
the
last
quarter.
The
government
projects
the
economy
will
suffer
a
7.7%
contraction
this
fiscal
year,
and
private
economists
projections
of
double-digit
growth
in
2021/22
will
partly
result
from
the
bounce
off
a
low
base.

“Hope
hinges
on
the
government
to
increase
its
spending
to
revive
the
private
sector
sentiment,
overall
demand
and
largely
private
investment,”
said
Arun
Singh,
global
chief
economist
at
Dun
and
Bradstreet.

($1
=
73.1225
Indian
rupees)

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