Covid-19: India budget under severe strain as new fiscal year begins

Bloomberg

India kicks off its fiscal year with revenues under severe strain.
A prolonged slowdown in the economy depressed tax collections in the financial year that ended on April 1, latest official data show. As India now conducts the world’s biggest lockdown, budget pressures are set to worsen.
Finance Minister Nirmala Sitharaman has already outlined a virus relief package of 1.7 trillion rupees ($22.5 billion) and may be planning more support. That could push up the government’s fiscal deficit target to as high as 6.2% of gross domestic product in the current year, according to Fitch Solutions, compared with the government’s target of 3.5%. Others, like DBS Group and Nirmal Bang Institutional Equities Pvt, see a deficit of 4.5%.
“All the budget maths will go haywire,” said Kunal Kundu, economist with Societe Generale GSC Pvt in Bengaluru. “There will surely have to be some restructuring in expenditure profile and the fiscal deficit would indeed have to rise, not just because of higher expenditure but also because of weaker growth.”
Even before the virus, Asia’s third-largest economy was on track for its weakest expansion in more than a decade of 5% in the fiscal year that just ended.
With Prime Minister Narendra Modi imposing a three-week lockdown on India’s 1.3 billion people from March 25 to contain the spread of the
virus, non-essential consumption and production in the economy is now at a standstill.
The government had expected to fund its 30 trillion-rupee spending plan in the new fiscal year from the following sources: 20 trillion rupees
from taxes, fees and dividends; 2.1 trillion rupees from asset sales; and the remaining 7.8 trillion rupees from market borrowings.
But official data released showed it’s falling far behind on its tax targets. Net tax revenue in the 11 months of the last fiscal year was 74.1% of the budgeted estimate, according to figures from the Controller General of Accounts. To meet its full-year target, the government would need to have collected 3.9 trillion rupees in taxes in March.
Revenue from asset sales also look unlikely.
The government had hoped to raise a record amount by selling national icons such as flag carrier Air India Ltd, refiner Bharat Petroleum Corp and listing Life Insurance Corp of India on the stock exchange. It’s now facing record losses in aviation, plunging oil prices, and the worst quarterly drop in local stocks since 1992, making an IPO difficult.
“Don’t even think of putting anything on the table for the next six months,” Madan Sabnavis, chief economist with Care Ratings Ltd, said by phone from Mumbai.
“Aviation has come to a standstill. The oil industry is in deep trouble. Air India and BPCL don’t look attractive.”