Economists at State Bank of India (SBI) on Thursday raised India's fiscal deficit forecast to 3.8 per cent of the GDP for this fiscal year, due to the coronavirus pandemic. The government had raised the fiscal deficit target to 3.8 per cent of the GDP from 3.3 per cent pegged earlier for 2019-20 due to revenue shortage.
According to SBI Research's Ecowrap report, the coronavirus outbreak will have an impact on trade, hotels, transport, communication and services sub-segment, which will push India's fiscal deficit to 3.88 per cent of GDP this fiscal.
"The COVID-19 is likely to impact India's fiscal numbers in FY20 though it might be too early to say, possibly in FY21," the report said.
The report said that the month of March will be severely affected by travel and transport curbs, which will have a spillover effect on growth. The agency believes that Q4 nominal GDP may impart a 1.4 per cent decline in FY20 GDP. In FY21, nominal GDP growth is at 10 per cent and every 10 bps slippage in nominal GDP numbers in FY21 will push up fiscal deficit by roughly 1 basis point, it added.
As per the report, based on current tax revenue trends, additional expenditure rationalisation of Rs 1.2 lakh crore might be required in the current fiscal if India has to stick to the mandated 3.8 per cent fiscal deficit target. The government has already announced an additional borrowing through short term papers in FY20.
According to the report, it would be foolhardy to stick to any mandated fiscal rules in times of current crisis that is now threatening to rip apart the entire global financial ecosystem. Globally, state loans, income subsidies and tax deferrals are the most common fiscal packages being offered.
In India, the number of active cases have risen to 151 with 14 fresh cases in single day. Comparing the occurrence of active cases in seven most affected countries apart from China, in the second week, the number of cases jumps almost 7 times compared to the first week. In some countries like Iran and Spain even the active cases rose to 13 times in the second week compared to the first week.
"Though India has already taken plethora of steps to prevent the spread of COVID-19, all eyes are now on the rise in active cases in the current week and next as this determines the extent of our preparedness," the report said.
The SBI Ecowrap report said that apart from fiscal measures, the government may think of unconventional fiscal measures such as tax moratoriums, payment extensions on social charges, loan guarantees and wage subsidies for workers who cannot work or move to part-time roles if COVID-19 in India reaches to third or fourth stages.