Pandemic recession 2021: State Budgets face big crunch over vaccination drive

Pandemic recession 2021: State Budgets face big crunch over vaccination drive
Image: Unsplash

The vaccination drive in India is leading the state governments to go beyond their budget amidst the crippling economic growth. The pandemic outbreak had already pulled the GDP rate of the country down. Now, the unprecedented vaccine drive arrival is making it quite difficult for the state government to manage.

The 29 states of India will need to put forward around 5 million dollars for vaccination costs. However, this comes into action after PM pushed the responsibility of inoculating senior individuals more from May 1.

Since the states weren’t budgeted or planned for the incoming vaccination. The methods of meeting the expenses can be: increased public borrowing, selling public assets and cutting the capital expenditure.

For each person, a combined cost of 600 can cost a state 354 billion rupees to give vaccine shots. About 590 billion people in the age bracket of 18-44 years will get the jab considering the above calculations.

Economist Madhavi Arora, Emkay Global Financial Services Ltd. spoke on the drive. She said that if the vaccination drive stretched for the people below the age of 18 years the cost could intensify to 0.25 per cent of GDP product.

The problem of fiscal deficit

The widening costs have arrived at a time when the states are already facing high fiscal deficits. There are higher yields on market borrowing in 2021. The recovery of the financial situation in the country seems to hold back. This is because the states are unable to raise enough money. Moreover, the state needs to consider around 60 per cent on building infrastructure and asset creation. The states have to increase job creation also.

T. S. Singh Deo, health and commercial tax minister of Chhattisgarh said, “Finances are bound to be affected,” “The axe will certainly fall on capital expenditure.”

Central Government directs states

The central government has even pushed the states to sell assets to fund plans for this year as it might reduce the debt burden. Palanivel Thiaga Rajan, an ex-wall street banker and recently appointed finance minister of Tamil Nadu states, “Everything is on the table,” he further added “We will cut back on a bunch of spending that we don’t think is essential during this time. We will try to raise new sources of funds.” He also focused that they would try to do some restructuring of the debt. And will also look into the asset sales.

Central bank, emphasized that the budget of the nation has recorded a massive change due to the pandemic situation. As per the Reserve Bank of India, Gross deficit before Covid was at 2.4 per cent output whereas after the lockdown in March, 2020 it stood at 4.6 per cent.

Although, the nation isn’t undergoing a full fledged lockdown still some parts of the country are facing it. The small movements taken by the state government through imposing weekend lockdowns and other is hampering the recovery rate.

Moreover, it is also convincing the economists to cut their double digit growth expectations for FY2021.

ALSO READ: COVID-19 Resurgence Dampens India’s GDP Forecasts For FY22