Government’s Once-In-A-Century Budget Runs Into Struggle As Virus Strikes Back

Government’s annual budget in February was praise by many and raised hopes it would drive a sharp economic revival, but there are now fears that its promise may fall flat as it did not account for a crippling second wave of COVID-19 infections.

The budget aimed to revive Asia’s third-largest economy via investing in infrastructure and health care, while relying on an aggressive privatization strategical and robust tax collections – on the back of projected raise of 10.5 per cent – to fund its spending in the fiscal year.

Finance Minister Nirmala Sitharaman said India would not see such a budget in “100 years”. At the time, a massive COVID-19 vaccination drive and a rebound in consumer demand and investments had put the economy on track to recover from its deepest recorded slump.

The South Asian country is battling the world’s second highest coronavirus case load after the United States, recording some 300,000 cases and about 4,000 deaths a day. With many parts of the country under varying degrees of lockdown, most of the growth projections that the budget was built around are now mired in uncertainty.

The extent of the crisis is even making investors question whether after years of debt accumulation, India once expected to become an economic well superpower, still worth to cling on to its ‘investment grade’ status.

Earlier this week, Moody’s said India’s severe second wave will slow the near-term economic recovery and it could weigh on longer-term growth dynamics. It cut its GDP forecast to 9.3 per cent from 13.7 per cent.

While the government maintains it is too early to revise its own numbers, officials privately concede growth will be much more muted that previously anticipated if social distancing measures still continue.

Besides providing ₹ 35,000 crore in the budget for vaccination costs, the government did not particularly dedicate any funds toward contingencies arising from a second wave and now may have to cut back on some expenses, officials said.