Coronavirus News Asia

India’s miserly response a path to viral collapse


MUMBAI – Unlike the trillion dollar measures rolled out by the United States and Japan, India is putting forward a comparatively miserly US$25 billion in government support for its coronavirus-hit economy. It’s not clear to most analysts, however, that will be enough to stave off an economic collapse. 

Concerns of an economic calamity deepened over the weekend when Prime Minister Narendra Modi’s government extended its Covid-19 lockdown for another fortnight, pushing back reopening from May 4 to May 17.  Indian businesses have already been shut for 41 days and will remain so for at least another dozen days.

India’s economy was slowing before the Covid-19 pandemic hit, with domestic demand and investment shrinking amid an uncertain business atmosphere triggered by an ill-planned demonetization of the currency in 2016 and a poorly implemented Goods and Services Tax (GST) the following year.

The economy could end the year with negligible to no gross domestic product (GDP) growth, analysts say.

The government’s fiscal maneuverability has tightened as revenue collection dries up with a Covid-19 seized up economy. Its fiscal deficit, or the shortfall of government income over spending, is already expected to widen well beyond the 3.5% target.

“The central government’s fiscal deficit will rise to about 5.1% of GDP in fiscal 2021, with considerable upside risk depending on the quantum of forthcoming fiscal support,’’ Sonal Varma, research analyst with Nomura said in a report. “With states’ budgets combined, the consolidated fiscal deficit will expand to about 9.5% to 10% of GDP, close to record highs in the recent past.’’

A health official takes a swab sample from a girl at a coronavirus testing center during a nationwide lockdown in New Delhi, April 27, 2020. Photo: Prakash Singh/AFP

The government is bound by concerns that a bloated fiscal deficit could motivate a credit risk ratings downgrade. It is also bound by the Fiscal Responsibility and Budget Management (FRBM) Act, which reins in government spending. Analysts expect the government would need to breach FRBM limits to be able to spend on health and revival of the economy.

“A potential spike in its general government debt from about 70% of GDP to about 75% to 80% of GDP may possibly trigger a reassessment of ratings, particularly for Moody’s,’’ Nomura said. 


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