India's annual budget in February was highly acclaimed for it rekindled the hope of a sharp economic revival. But now it only remains as a flickering promise for it didn't account for the horrendous second wave of the COVID 19 pandemic. The budget directed at rejuvenating Asia's third-largest economy via infrastructure and health care, whilst depending on stern privatisation strategy and staunch tax collections, with an estimated growth of 10.5% for funding the spending in the fiscal year.
Finance Minister Nirmala Sitharaman had claimed that India will not see such a budget in "100 years". During the announcement of the budget, an enormous COVID-19 vaccination drive and a recoil in customer's demand and investment had redirected the derailed economy on the right path of recovering from its record slump.
After the United States, the South Asian nation in combating the world's second-highest coronavirus caseload, with 300,000 infections and 4,000 deaths per day. In several areas of the world under various measures and degrees of lockout, much of the budget's growth forecasts upon which the budget was set up are now in jeopardy.
The severity of the crisis has investors questioning whether India, which was once supposed to become an economic powerhouse, still needs to keep its 'investment grade' status after years of debt accretion. India's appalling second wave, according to Moody's, would hamper the near-term economic recovery and could have an effect on longer-term growth dynamics. It lowered its GDP projection from 13.7 per cent to 9.3 per cent.
While the government asserts it is too early to update its own figures, officials covertly admit that if physical distancing policies continue, inflation will be even more muted than previously expected. Other than billion rupees ($4.78 billion) in the budget were catered for vaccine costs, the government did not set aside any funds for contingencies resulting from a second wave, and officials say the government will now have to cut down on certain expenditures.
The Indian bureaucracy has been struck hard by this health crisis, with many central officials afflicted with the coronavirus, delaying decisions on privatizations and other planned reforms. The privatization of holdings such as oil refiner Bharat Petroleum Corp (BPCL.NS) and national carrier Air India, where processes are well advanced, could now be moved back to early 2022, three months later than previously expected, according to two senior officials.
"The virtual data room for BPCL has been opened for initial bidders but given the lockdown, physical verification of assets is unlikely right now," one of the officials said reported Reuters.
The delays would have an effect on various other privatization proposals, including two banks, insurance, and energy providers, which are at the crux of the budget's proposed changes and are primarily for meeting the nearly $24 billion target from asset purchases and privatizations. The crisis is also likely to stall India's largest insurer Life Insurance Corp's IPO, which was supposed to generate $8-$10 billion, according to officials.
Another official said the lockdowns will begin to impact tax collections in June, possibly lowering taxes by 15% to 20% compared to projections for the year.
With a forecast fiscal deficit of 6.8% of GDP and a soaring borrowing programme, glitches in the privatisation process and expected tax revenue shortfalls are already triggering cuts to some of the government's previously earmarked expenditures, two officials informed
"We are looking to press a pause button on some of our non-priority spendings," one of the officials said
One of the officials said the government is refocusing on stimulus initiatives and increased investment on urgent health care needs such as oxygen plants and temporary COVID-19 centres, and that the government's efforts to reduce fuel prices by reducing certain taxes have also been shelved.