Outsourcing the Stimulus

On 8 May, 45 days into the Covid-19 lockdown, the central government, through a finance ministry statement, announced that its borrowing requirement for 2020–21 had been raised to ₹12 lakh crore, as compared with the ₹7.8 lakh crore projected in the budget. As of now, starting 11 May 2020, the centre expects to be borrowing around ₹30,000 crore every week till 25 September, as compared with ₹19,000–₹21,000 crore, planned earlier. What would happen after 25 September 2020 is not clear as of now, but what is clear is that whether the central government likes it or not, all projections of the fiscal deficit have been rendered meaningless by the pandemic.

However, while declaring that this borrowing requirement revision was necessitated by the fallout of the Covid-19 pandemic, the finance ministry’s statement did not make clear how much of it would be due to an increase in expenditure needed to address the pandemic and revive the economy, and how much due to the collapse in revenues that have resulted from the sudden stop in economic activity resulting from the extensive and stringent lockdown in response to the pandemic. Stalled economic activities and falling incomes erode revenues, necessitating increased borrowings to sustain even reduced expenditures.