‘Once in a century’ Budget hit hard by increase in caseload

India’s annual budget in February was lauded by many and raised hopes it would drive a sharp economic revival, but there are now fears that its promise may fall flat as it did not account for a crippling second wave of Covid-19 infections.

The budget aimed to revive Asia’s third-largest economy via investing in infrastructure and health care, while relying on an aggressive privatisation strategy and robust tax collections—on the back of projected growth of 10.5%—to fund its spending in the fiscal year.

Finance Minister Nirmala Sitharaman said India would not see such a budget in “100 years”. At the time, a massive vaccination drive and a rebound in consumer demand and investments had put the economy on track to recover from its deepest recorded slump.

Earlier this week, Moody’s said India’s severe second wave will slow the near-term economic recovery and it could weigh on longer-term growth dynamics. It cut its GDP forecast to 9.3% from 13.7%.

While the government maintains it is too early to revise its own numbers, officials privately concede growth will be much more muted that previously anticipated if social distancing measures continue.

Besides providing₹350 billion in the budget for vaccination costs, the government did not specifically dedicate any funds toward contingencies arising from a second wave and now may have to cut back on some expenses, officials said. The finance ministry did not comment on the matter.

The health crisis has also hit the Indian bureaucracy badly with many key officials infected by the coronavirus, slowing decisions on privatisations, among other proposed reforms.

Two senior officials said the privatisation of assets such as oil refiner Bharat Petroleum Corp and national carrier Air

India, where processes are well advanced, may now be pushed into early 2022 - some three months later than previously planned.

“The virtual data room for BPCL has been opened for initial bidders but given the lockdown, physical verification of assets is unlikely right now,” one of the officials said.

The delays will affect a series of other privatisation plans including two banks, insurance and energy companies, that are at the centre of reforms proposed by the budget and that are key to achieving the roughly $24 billion target from privatisations and asset sales, the officials said.

The crisis is also likely to delay the listing of India’s largest insurer Life Insurance Corp, which was expected to raise $8-$10 billion, they said.

Another official said the lockdowns will start affecting tax collections by June, potentially lowering revenues 15%-20% from what was estimated for the quarter.