Second wave may upend Budget hopes

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 per cent - to fund its spending in the fiscal year.

Finance Minister Nirmala Sitharaman said the country would not see such a budget in “100 years”. At the time, a massive COVID-19 vaccination drive and a rebound in consumer demand and investments had put the economy on track to recover from its deepest recorded slump.

With many parts of the country under varying degrees of lockdown, most of the growth projections that the budget was built around are now mired in uncertainty. The extent of the crisis is even making investors question whether after years of debt accumulation, India once expected to become an economic superpower, still deserves to cling on to its ‘investment grade’ status. Moody’s recently 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 per cent from 13.7 per cent.

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 Rs 350 bn ($4.78 bn) in the budget for vaccination costs, the Centre 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.