The government's move to supply free coronavirus vaccines to the States for universal inoculation and extend free rations to help the poor tide over the pandemic will only add an additional 40 basis points (bps) of GDP to fiscal deficit, says a report.
The increased allocation of free vaccines to all above 18 years coupled with extending free foodgrain supplies through rations will add only 40 bps to the overall fiscal deficit in FY22, which poses upside risks to the estimated of 6.8% of GDP, Tanvee Gupta-Jain, economist at UBS Securities India, wrote in a note.
Assuming an average price of Rs 150/dose, with a similar amount incurred on logistics and supply charges, we estimate the total fiscal cost to the Centre will be Rs 40,000-Rs 45,000 crore and of this, Rs 35,000 crore has already been provided for in the Budget, which means the Centre will have to allocate a maximum of Rs 10,000 crore for this, she said.
The much-delayed move, announced on Monday which came days after the Supreme Court said the vaccine procurement policy of the Centre was arbitrary and sought all file notings on the iss she said, will ensure that vaccine distribution is now predicated on need, rather than the purchasing power of the States and can alleviate the problems faced by the States in directly procuring doses from manufacturers to inoculate the 18-44-year-old population. However, the vaccine distribution plan needs to made more transparent for effective and efficient allocation to the States and the key parameter remains the ability to ramp up vaccination supplies.
On the fiscal impact of this and extension of free food programme till November, she added the associated fiscal cost works out to be 0.4% of the GDP.
The government's balance sheet remains stretched, with the general government fiscal deficit widening to 13.3 per cent of GDP in FY21 from 7.8 per cent in FY20. The government estimates the combined fiscal deficit to remain elevated at 10.3 per cent of GDP in FY22.
The pace of vaccinations has slowed to 2.8 million doses/day to the week to June 6 from the peak of 3.6 million doses/day in the first week of April, largely on supply shortages. We still expect a meaningful ramp-up in daily vaccinations from 3.5 million doses in June to 6 million by November and around 42 per cent of the population or 60 per cent of the adults will be fully inoculated by December.
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