Evaluation: If India attracts up a funds for the virus disaster, it must spend cash, funds might run out

© Reuters.

By Aftab Ahmed and Swati Bhat

NEW DELHI / MUMBAI (Reuters) – After India’s Finance Minister Nirmala Sitharaman raised hopes for populist measures by speaking of a “budget like never before,” he must find credible sources of additional income from a pandemic-stricken economy.

The national debt is already reaching the upper limit, revenues are being severely dampened and the budget deficit is likely to have skyrocketed due to the pandemic spending.

“It will be difficult for the finance minister to find resources. But she will get help from the economic recovery which is likely to add some tax revenue,” said NR Bhanumurthy, economist and vice chancellor at BR Ambedkar School of Economics in Bengaluru.

“She has to push hard for non-tax revenues like the sale. The current year was a zero year for the sale.”

The sale and privatization of investments seldom meet the objectives. The government has raised just over Rs.138 billion out of a target of Rs 2.1 trillion ($ 28.72 billion) for the current year. Fiscal year 21 is not expected to be more than 300 billion rupees, according to government officials.

However, they said that in the first six months of the fiscal year beginning April, the government had recovered over Rs.1 trillion from the privatization of Air India, Bharat Petroleum Corp., Container Corp. from India and Shipping Corp. from India could raise.

When looking for a domestic airline for investors, Air India could pose a challenge with these restricted travel, COVID-19 times.

A senior government official involved in planning the 2021/22 budget, which Sitharaman will deliver on Feb.1, anticipated the revenue lost at the beginning of the current fiscal year and doubted that it could be reclaimed.

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

India is unable to raise larger funds from the market as the central government has increased market borrowing by over 50% to fund a COVID-19 relief program, said a second official, who is also involved in budgeting.

Regardless, the government is projected to see a $ 7 trillion drop in sales this year, which it may need to fix in a new way in the coming fiscal year.

“There could be overtures to offset this year’s decline in sales by increasing taxes on wealthy individuals and taxes on sin,” said Radhika Rao, an economist at DBS, referring to taxes on items such as tobacco and alcohol.

A third official refused to say whether the government will introduce a COVID tax or tax collection, but said it was considering increasing taxes in certain categories but would ensure that middle-income citizens were not burdened.

He said they would also try to impose additional or higher import duties on high-end electronics.

LONG-TERM BUDGET

Sitharaman said in a December interview with Reuters that she plans to hike spending as it would completely undermine a government aid program launched last year to help poor families and small businesses.

Speaking at a Confederation of Indian Industry conference last month, Sitharaman spoke of expectations for a Sops-filled Big Bang budget, saying India will see “a budget like never before”.

The government wants to use the budget as a way to get high growth for three to four years, the third official said, stressing that spending increases would not be brought to unsustainable levels.

“So not all of the announced funds would be for this year. We could certainly have spending growth this year, but the funds announced in the budget would be for the years to come.”

The government’s budget deficit for the year ending March is projected to be above 7% and more than double the budgeted estimate.

In view of all the uncertainties, the economists assume that the government has no alternatives and must increase spending.

With a population of nearly 1.4 billion afflicted by massive income disparities, India needs over 8% annual economic growth to create enough jobs every month for the millions of young people entering the world of work.

It was just before the COVID-19 hit. Growth was 6.1% in 2018/19 before falling to 4.2% in 2019/20 when the pandemic broke out in the final quarter. The government expects the economy to contract 7.7% this fiscal year, and private economists’ projections for double-digit growth in 2021/22 will be partly due to the recovery from a low base.

“Hope rests on the government to increase spending to revive private sector sentiment, aggregate demand and largely private investment,” said Arun Singh, Dun and Bradstreet’s global chief economist.

($ 1 = 73.1225 Indian rupees)

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