Business & Investment

India’s 100-year budget runs into problems as Covid counterattacks

India’s annual budget for February was praised by many and raised expectations for a rapid economic recovery, but promised because it did not explain the catastrophic second wave of the Covid-19 infection. May level off.

The budget aims to revive Asia’s third-largest economy through investment in infrastructure and healthcare, with fiscal year spending expected to grow by 10.5%. It relies on privatization strategies and strong tax collection.

Finance Minister Nirmala Sitharaman said India would not see such a budget in “100 years.” At that time, the economy was on track to recover from the most severe slump recorded, with the promotion of large-scale Covid-19 vaccination and the recovery of consumer demand and investment.

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Cost reduction

The country is fighting the world’s second-highest number of coronavirus cases after the United States, recording about 300,000 cases and about 4,000 deaths per day. Many parts of the country are under various degrees of blockade, and most budgeted growth forecasts are currently plagued by uncertainty.

The scope of the crisis questioned investors whether India, once expected to become an economic power after years of debt accumulation, still deserves to stick to an “investment grade” position. I’m letting you.

Earlier this week, Moody’s said India’s serious second wave could delay short-term economic recovery and weigh on long-term growth dynamics. We have lowered our GDP forecast from 13.7% to 9.3%.

The government claims it’s too early to revise its numbers, but authorities say growth will be much slower than previously expected if social distance measures continue. Admits.

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In addition to providing a budget of £ 350 billion for vaccination costs, the government has not specifically funded the contingencies that arise from the second wave and may now have to cut some costs. Officials said there was.

The Ministry of Finance did not respond to requests for comment.

Delayed privatization

The health crisis has also severely hit India’s bureaucracy with many major coronavirus-infected officials, delaying privatization decisions and among other proposed reforms.

Two senior officials said the privatization of highly-processed assets, such as oil refinery Bharat Petroleum Corp and state-owned airline Air India, will be pushed into early 2022, about three months behind previous plans. Said there is a possibility.

“The BPCL virtual data room was opened for the first bidder, but because it’s closed, physical verification of the asset is unlikely so far,” said one official. It was.

Delays are central to the reforms proposed by the budget and a series of other banks, including two banks, an insurer and an energy company, that are key to achieving the $ 24 billion goal from privatization and asset sales. Affects privatization plans. Officials said.

The crisis is also likely to delay the listing of life insurance company, India’s largest insurer, which was expected to raise $ 8 to $ 10 billion, they said.

Another official said the blockade would begin to affect tax collection by June, potentially reducing income by 15 to 20 percent from quarterly estimates.

The expected budget deficit target is fixed at 6.8% of GDP, and due to the surge in borrowing programs, delays in privatization plans and expected lack of tax revenues have led to previously allocated costs to the government. Some have already been reduced, two officials said.

“We are looking to press the pause button on some of our non-priority spending,” said one of the officials.

The government is focusing on bailouts and increased spending on urgent medical needs such as oxygen plants and temporary Covid-19 centers, one official said, with some tax cuts. The government’s plan to provide fuel price relief has also been postponed.

India’s 100-year budget runs into problems as Covid counterattacks India’s 100-year budget runs into problems as Covid counterattacks

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