Covid-19 crisis calls for an urgent re-working of the Union Budget

When facts change, it is best to change your mind. The Indian government would do well to remember this maxim as it tries to stitch together a fiscal response to the Covid-19 crisis within the constraints of the Union Budget it had presented in February. Governments around the world have made it amply clear while rolling out mega-stimulus packages, that normal budgetary considerations go out of the window in these extra-ordinary times. The Centre too, must recognise that none of the estimates it made on February 1 can be expected to stick to the script now. Though the Parliament has already passed the Budget, it would be best to acknowledge that the crisis calls for an urgent re-assessment of Central priorities and to completely redraw it.

There are three sets of Budget assumptions that call for a serious relook. One, with the Covid-19 crisis likely to sharply dent India’s GDP growth this quarter onwards, the ambitious tax revenue growth assumed in the revised estimates for FY20 are now highly unlikely to be met. This will also affect assumptions for FY21, which factor in a 9 per cent increase in taxes and a 11 per increase in non-tax revenues on the high base. With the nationwide lockdown freezing economic activity, the next couple of quarters are likely to be a complete washout for most businesses, making it imperative for the Centre to come up with financial support to ensure business continuity. Two, the standard outlays in the February Budget towards administrative costs, defence expenditure and pet schemes need to be revisited too. As lakhs of displaced migrant workers struggle to make ends meet, they urgently require some form of direct cash support to meet their basic needs. None of the measures announced in the PM Garib Kalyan Yojana — higher rations, small credits into women’s Jan Dhan accounts, higher MGNREGA wages, EPF withdrawals — address the problems of these informal workers. The size of this package — at 0.8 per cent of GDP — mocks the scale of this problem. Three, research agencies are now modelling alarming numbers on the need for hospital beds and critical care equipment should Covid-19 spread. This has underlined the glaring inadequacy of India’s public health infrastructure in terms of both the number of doctors and beds and equipment, which will need investments on a war footing over the next few months. For the long term, this outbreak has also underlined the futility of relying on insurance schemes such as Ayushman Bharat, instead of physical public health infrastructure to meet the needs of the poor.

Even hawkish fiscal commentators are unlikely to cavil at India exceeding its deficit targets at a time like this. The Centre should, therefore, set out realistic deficit targets in its reworked Budget while also allowing States, who are at the frontline of this crisis, to cross the red lines set out by the FRBM rules.

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