The cost of this programme has been put at Rs 90,000 crore, which is outside what was in the Budget. Therefore, there will definitely be pressure on the fiscal balances. Today it is almost clear that there will be a fall in the real GDP growth and the best-case scenario is one in which nominal GDP stagnates at around Rs 200 trillion (with real GDP growth declining by 5 per cent and inflation being 5 per cent, thus resulting in zero growth). Intuitively it can be measured that the extension of this scheme will be at 0.45 per cent of GDP and hence add to the fiscal deficit
by this amount. In fact, the earlier measures were of the order of Rs 1.75 trillion and with this new addition will be Rs 2.65 trillion or 1.3 per cent of GDP.
The government has already increased its gross borrowing programme to Rs 12 trillion from Rs 7.8 trillion and it would be interesting to see if these numbers were included in the calculation. The government accounts for the first two months of the year are not encouraging and tax revenue aggregated to Rs 1.26 trillion compared with Rs 2.14 trillion last year. The shutdown has resulted in sharp decline of GST collections of around Rs 57,000 crore and income tax by Rs 25,000 crore. These shortfalls will persist as long as the lockdowns are extended. This has to be kept in mind throughout the year as revenue shortfalls will be linked with level of economic activity. It is probably keeping this in mind that the government has been increasing the excise duty on petrol and fuel to shore up its resources. Excise collections in the first two months were lower than last year by around Rs 17,000 crore.
The overall fiscal deficit
will most likely move towards the 7-8 per cent range for sure for the central government this year and a lot will be dependent on the disinvestment programme which is betting on three big-ticket sales – LIC, BPCL, Air India. However, the positive aspect of this enlarged fiscal deficit
which is combined with the state deficits and can come closer to 12 per cent, is that the surplus liquidity in the system will buffer to a large extent this demand and ensure smooth passage. Also, the RBI can be relied on to provide liquidity through its OMOs and LTROs to ensure there is minimal market distortions.
The challenge for the government evidently will be next year as it has to work hard to revert to the FRBM path.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.