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 Photo

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.

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.

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.

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.

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