The domestic segment, too, looks static and it is doubtful if people will be willing to fly except under extreme conditions post the epidemic. In fact, with business getting used to conducting meetings through webinars, the cost saving involved in not travelling will make sense when India Inc is not expected to do well. Therefore, potential buyers would certainly not get in given the low prospects.
Lastly, LIC was to get in almost half of the targeted amount, which was always going to be a challenge when the Budget announced that the 80C section was going to be optional for taxpayers who could opt for the scheme where one could give up exemptions to join a system of lower tax rates. One can logically interpret this to mean that at some stage all the exemptions would go and insurance would be the last thing on a saver’s mind given that the returns are even lower than bank deposits and small savings.
Not meeting the target has severe challenges for the government and this is where growth comes in. An extended shutdown and lower growth means lower GST (the monthly target cannot be attained). That apart, it will lead to lower corporate, customs (ban on trade), and income (job loss) tax collections.
Overall tax revenue, including those to be transferred, was estimated at Rs 24 trillion and a now a 10 per cent fall cannot be ruled out. Add to this the low level of disinvestment and we can be looking at a shortfall of around Rs 2.5 trillion or so. The fiscal stimulus announced of Rs 1.7 trillion will add to the fiscal deficit further and the fiscal deficit ratio could be at 5.5 per cent.
The problem really is that any slippage in disinvestment combined with other revenue shortfall will mean that the government would have to rework some expenditure numbers, which could mean rolling over some of them. Minor cuts in salaries or MPLAD being withdrawn can contribute a little, but at the end of the day, borrowing will go up. This is probably the reason as to why the market is still skeptical despite the surplus liquidity in the system. The government would necessarily have to borrow more in the market, which will pressurize liquidity over time.
Madan Sabnavis is chief economist at CARE Ratings. Views are personal.