Government finances won’t be overburdened by Covid vaccine drive, relief measures says SBI research report
According to State Bank of India (SBI) Research. The government’s finances will not be overburdened by recent measures such as free Covid-19 vaccinations for the states and free food grains for the needy, with a projected impact of Rs 28,512 crore,
Revenue from the (GST) Goods and Services Tax and excise duty, mainly coming from fuel consumption, are expected to be higher than conservative budget estimates, as reported on Monday.
Risks to the higher-than-expected revenue collection outlook included a tragic third wave that would impact consumption and any fuel tax structure change.
The good news is that this proposes additional fiscal space. The bad news is fuel prices are acting as a barrier! So, prices may not fall Soumya Kanti Ghosh, SBI group chief economic adviser, Tweeted.
The union government said it would cover the vaccination cost for 75% of the 1.62 billion doses required to vaccinate India’s 810 million-strong adult population.
Let’s assume a cost for a single dose is Rs 400; the total cost will be Rs 48,851 crore, of which the government had already budgeted for Rs 35,000 crore.
Further, the Pradhan Mantri Garib Kalyan Anna Yojana extension till November will be adding a cost of Rs 91,000 crore on the government’s finances for the scheme from May onwards.
Based on ongoing trends in GST rates and the collections for April and May, SBI Research estimated that the states’ revenues for FY22 would come up to Rs 8.27 lakh crore against their combined budgeted estimates of Rs 7.67 lakh crore.
This implies that the central government may not have to borrow much of the Rs 1.58 lakh crore as compensation for the expected shortfall in collections, it said, adding the states could even see a marginal revenue gain of Rs 1,311 crore in the non-appearance of a third wave.
On the other hand, a worst-case scenario might see the states facing a Rs 79,147 crore shortfall.
Looking at the 10-year trend in petrol and diesel consumption and accounting for the pandemic-induced disruption, SBI Research said the government would see excise duty revenues touch Rs 4.11 lakh crore.
This hints at a gain of Rs 76,339 crore over the budgeted Rs 3.35 crore.
“While we do not rule out disruption to Government finances in subsequent months as economic activity picks up slowly, we believe the space for monetary accommodation is over, and only a proactive fiscal policy can rekindle animal spirits and growth,” the report said.