The first signs of rising stress in the country’s fiscal position this year is becoming evident with the government further stretching its already stretched finances to provide for additional food and free vaccines to the masses hit by the second Covid-19 wave.
Rough calculations indicate the government’s Covid relief measures, including distribution of 5 kg foodgrains free of cost to 80 crore people till November (in addition to May and June announced earlier) and procurement of an additional 25 per cent of Covid-19 quota available from domestic producers for onward free distribution to states could result in stretching Centre’s FY22 expenditure by an additional over Rs 1 lakh crore, thereby resulting in fiscal slippage, to the tune of around 0.5 per cent from initially budgeted 6.8 per cent of the GDP.
Though officials refuse to give details of the fiscal numbers for FY22 as final calculations are yet to be worked out, they said that the initial cost for the relief measures looks like standing at Rs 1 lakh crore subject to correction post-November.
“If the Rs 1 lakh crore additional spending is maintained till year-end, the same could be managed through additional resources the government has this year in the form over Rs 99K cr surplus transfer by the RBI, buoyancy in tax collections compared to last year and some savings through non-critical expenditure cuts,” said an official source not willing to be named as numbers were still to be worked out.
Also, the Rs 1 lakh crore estimate may actually grow higher or fall lower depending on the quality of lifting of free food grains by the states. If the current level of free foodgrain lifting, where wheat occupies over 60 per cent space, is maintained, the fiscal burden will be a bit less than Rs 1 lakh crore.
But if rice is supplied under free food grain, where its economic cost is almost 40 per cent more than wheat, the Centre’s fiscal burden may shoot up over Rs 1 lakh crore. But even this is dependent on the level of lifting by states at a time when there is not a complete lockdown as was the case in 2020, sources said.
The Rs 1 lakh crore figure for the initial two Covid -19 relief measures announced by the Centre is based on the assumption that an additional 25 per cent purchase of vaccine by the Centre would shoot up its vaccine procurement budgeted at Rs 35,000 crore in FY22 by an additional half of this amount at Rs 17,500 crore. This could increase the Centre’s vaccination tab to over Rs 50,000 crore.
Also, the free foodgrain announced by the Centre earlier for two months (for May and June) cost it around Rs 25-26,000 crore. Additional spending till November this year could be another Rs 65,000 crore. However, if states seek to lift more of rice under the central scheme, this Rs 65,000 crore for the next 5 months could be Rs 80,000 crore or more. But, if states lift less than what is provided by the Centre, there could be saving in additional expenditure.
Experts indicated that the Centre may not need to borrow more to meet its additional expenses future needs this year as Rs 12 lakh crore borrowing for FY22 should be more than adequate. Pressure could rise if the country witnessed another wave of Covid requiring more fiscal stimulus measures by the Centre.
India has to stretch its finances even in FY21 as the Covid pandemic and nationwide lockdown severely dented the economic environment pushing up India’s deficit with lower revenue and higher expenditure. The country budgeted a higher fiscal refit if 9.5 per cent for FY21 but it fell down slightly to 9.3 per cent of GDP as per the revised estimate.
The hope for this year too is that rising expenditure needs does not derail the country from the path of fiscal consolidation into another year of fiscal stress.
