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NEW DELHI : The government is weighing the need for measures outside the Union budget to deal with any dramatic shift in the pandemic’s impact on the economy and livelihoods, two people aware of the development said.

Discussions on an economic response to the third wave of the pandemic, if needed after the budget presentation, has begun even as the finance ministry enters the last leg of budget preparations.

The idea is to be prepared with a strategy should the pandemic cause more-than-expected disruptions to economic activity and impact growth recovery, the people said, requesting anonymity.

In 2020, stimulus measures came after the budget presentation as the covid outbreak took the shape of a pandemic a few months later. Similarly, in 2021, the government came up with another set of stimulus measures after budget when the pandemic was abating.

Economists are looking at possible scenarios of the current pandemic wave playing out well into the middle of the next fiscal.

“The government is likely to take into account the likely impact of the third wave only after the budget for FY23 because budget preparation has already been mostly done. Most of the effect will happen in the fourth quarter of the current fiscal or may continue in the first few months of the next financial year. If the effect is severe, it will have to be addressed through a supplementary budget next financial year," said D.K. Srivastava, chief policy adviser, EY India.

EY expects the government to signal a return to fiscal consolidation while supporting growth. It would imply that from the level of 6.8% or possibly 7% fiscal deficit in the current year, it could come down to 6% next fiscal, said Srivastava. The government initially estimated a 15 trillion fiscal deficit, or 6.8% of GDP, for the current year at the time of making the budget but sought Parliamentary permission in December to spend an extra 3.7 trillion on food and fertilizer subsidy, export and production incentives and to repay Air India’s dues.

One of the officials cited above said the impact of the Omicron variant of the virus on the economy has already been looked into and, if needed, more steps outside the budget could be considered after studying its impact for a couple of months more.

A query sent to the spokesperson for the finance ministry seeking comments for the story remained unanswered till press time.

Rating agency Icra Ltd has projected two scenarios. The first one expects the impact of the covid wave to be restricted to the fourth quarter of the current fiscal while the second is about having a moderate covid wave in FY23. It said that the upcoming budget would face some constraints because of a slowdown in indirect taxes collections following excise duty cuts, a moderation in nominal GDP growth to 12.5% from the 17.5% estimated for the current fiscal and the lingering economic uncertainty due to the emergence of new mutations, which may necessitate additional spending on free foodgrain and guaranteeing rural jobs.

A key element of the government’s stimulus measures has been guaranteeing credit given by financial institutions to small businesses, which resolves liquidity issues of companies without major stress on the government’s budget. Schemes similar to the Emergency Credit Line Guarantee Scheme are likely to be considered under a fresh set of stimulus measures while the compliance burden on taxpayers may also be reduced.

The size of the stimulus measures in 2020 was close to 30 trillion, while the one after the second covid wave in 2021 was around 6.3 trillion. Though the size of stimulus measures for FY23 has not yet been decided, officials indicated it could be closer to 2021 levels, but all will depend on the kind of damage the current pandemic wave has on the economy.

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