A Long Winter for Economy

Context:  The pandemic has resulted in a shrinkage of government revenues at a time when there is a need to spend more to safeguard lives and livelihoods.

Economic problems associated with the pandemic          

• Fall in revenues: While the revenue collection for the Centre declined by 32.5% as compared to 15% growth earlier, for 11 large states, it declined by 21.5% as compared to a growth of 10.4% earlier.
• Decline in total government expenditure: For Centre, a decline of 0.6 % while for 11 large states, a decline of 1.5 %.
• Revenue Expenditure: For Centre, a decline of 1 % while for 11 large states, a growth of 1.5 %
• The increase in revenue expenditure of the states is due to the spending on health(a state subject) to fight the pandemic
• Overall decrease in allocation for pension and subsidies under revenue expenditure
• Capital Expenditure: For Centre, a decline of 11.6 % while for 11 large states, a decline of  4%
• Bigger cut of capital expenditure by states on account of a harder budget constraint (worrying as states undertake 60% of overall government capital expenditure).
• States may not be able to push up capital expenditure if the debt levels rise and debt servicing becomes poor.
• Increase in government borrowings: In 1^st half of this fiscal year, market borrowing of both Centre and state have increased by 50% year-on-year
• A possible rise in debt levels in future: Currently, 12 large states have a debt to GSDP (Gross State Domestic Product) ratio of over 25 %, and now more states are expected to reach this level.
• Debt-servicing of states threatened: The ratio of interest payments to revenue receipts for states, has continued to trend down.
• Decrease in Private sector Investments: due to demand uncertainty and low capacity utilization which remains low, at 58.6% this year (below the 71.9% seen last year).

Conclusion: It might take more time for the cylinder of public investment to start firing, which is currently declining due to the Pandemic induced slowdown.