Defence IndustryPrivate Sector

Brace for COVID-19 Impact on Defence Expenditure

Surpassing all economic crises of the past, the COVID-19 pandemic has hit economies across the world as never before. Forced to go into a nation-wide lockdown in the last week of March, it has been a double whammy for India that was already going through an economic slowdown before the outbreak of the deadly virus.

The International Monetary Fund (IMF) scaled down India’s growth estimate for the current fiscal to 1.9 per cent last month from 5 per cent estimated just three months earlier. Though it also added for good measure that India and China would most likely be the only two major economies to register growth despite the pandemic, it cannot bring any immediate cheers to either the government or the citizens braving the current crisis.

Cessation of practically all revenue-generating activities during the lockdown period has impacted the government finances and it will take a long time even after the lockdown is completely lifted for the government revenues to start flowing again. The impact will be felt on receipt as well as the expenditure sides of the government’s balance sheet.

Almost two-thirds of the current year’s estimated receipts are slated to come from taxes and non-tax receipts such as the interest received on loans. There is hardly any scope for augmenting receipts from these sources. In fact, with the general lowering of incomes, the government will be lucky to meet the budget target.

Of the remaining one-third, about 20 per cent is planned to be raised through disinvestment which, in the present circumstances, seems like a pie in the sky. It bears recalling that last year, the targeted amount, though half of this year’s, had to be reduced by as much as 40 per cent at the revised estimates (RE) stage, indicating that disinvestment is not an easy task.

Borrowings are the third important component of the government’s receipts, which, for the current fiscal, were projected to be Rs 7,96,337 crore. With the decision announced earlier this month to borrow additional money, the total borrowings for the current fiscal would now be Rs 12 lakh crore. The borrowing limit of the states has also been raised from 3 per cent to 5 per cent.

These borrowings will inevitably push up the interest-payment liability of the central and state governments, adding to the pressure on the expenditure budget.

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bharat shakti
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