Abstract

1. Introduction

The year 2020 was a difficult year globally. Although the first signs of the pandemic were recognized in China in December 2019, the World Health Organization (WHO) notified this as COVID-19 Pandemic in March 2020 only, by when the infection had already spread the world over like a wild fire. India eventually went for a 21-day national lockdown on March 24, 2020, which was extended further till May 2020.

The lockdown caused a 24 per cent decline in GDP in the first quarter of the FY-2021, although India scored high in terms of ‘early response to the Pandemic’. The Government, moreover, did not anticipate the fall out of this lockdown in terms of labor migration from metropolitan cities and other town ships back to the villages.

In the absence of any means of transportation, the miserable workers began returning to their homes on foot and cycles. To their shock, they found themselves unwelcome in their own villages as the villagers feared the spread of the infection. It has been reported that the wives fought for their husbands and brought them home.   

The Pandemic continued to spread despite all precautions, and India was faced with the problem of shortage of ventilators and beds in the ICUs in the hospitals. There was confusion in the developed countries as well in handling the situation. Countries such as Italy, Spain, France, the UK and the USA were all faced with a grim situation. Air travel was found to be one of the main culprits of such a fast spread of the Pandemic the world over.  The United States put a travel ban only in October 2020, leaving the decision for lockdowns to the different federal states.

The GDP of most of the advanced countries contracted by 10 per cent and more in 2020 due to the Pandemic. The decline in India’s GDP for the full year was stated to be by 7.7 per cent, which has been disputed by several experts. Anyway, the revenue collections of the Central government came down at a time when the need for public expenditure went up greatly.

2. Status of the Central Government Finances in 2020

The impact of the COVID-19 Pandemic on the finances of the Central government can be best measured through a comparison between the BE and the RE figures of 2020-21 as reported in the Union Budget (2021-22).  What it shows essentially is that while the total revenue receipt of the Central government fell short of the estimates by nearly Rs. 5 lac crores, the expenditure exceeded the budgeted estimates by nearly Rs. 5 lac crores. This meant a gap of nearly 10 lac crore that had to be met through public borrowings. Since the earlier estimate of fiscal deficit was equal to Rs. 7.96 lac crores, it went up to Rs. 18.48 lac crores (Table1.).

                             Table1.Central Government Finances during 2020-21

	2020-21		2021-22
	BE	RE	BE
(a) Tax Revenue (Net of Transfers to States)	Rs 16.36 lac crores	Rs 13.44 lac crores	Rs 15.45 lac crores
(b) Non-tax Revenue	Rs 3.85 lac crores	Rs 2.10 lac crores	Rs 2.43 lac crores
Total (a+b)	Rs 20.20 lac crores	Rs 15.55 lac crores	Rs 17.88 lac crores
(c) Total Expenditure	Rs. 30.42 lac crores	34.50 lac crores	34.83 lac crores
(d) Fiscal Deficit	Rs 7.96 lac crores	Rs 18.48 lac crores	Rs 15.06 lac crores

As it was a health emergency, the whole attention of the Government was on how best to face the Pandemic. According to the Economic Survey 2020-21, the Government classified the different ministries into ‘A’, ‘B’ and ‘C’ categories. All those ministries that were directly or indirectly related to the health sector were put into ‘A’ category with the assurance that they would be provided with expenditures as required by their Ministries for mitigating the Pandemic.

 Category ‘B’ and ‘C’ category Ministries, on the other hand, were required to reduce their expenditures and restrict them to spending only 20 per cent and 15 per cent of their budgetary allocations respectively each quarter. As this financial prudence was not good enough to meet the challenge, the Government resorted to public borrowings. As a result, the fiscal deficit of the government went up from the stipulated 3.5 per cent of GDP to 9.5 per cent of GDP.

The Government borrowings comprised market borrowings, National Small Savings, State Provident Funds and external debt. The big increase was in market borrowings that went up from the estimated Rs.5,35,870 crores (BE) to Rs.12,73,788 crores (RE) comprising mainly long duration Government Securities and Treasury Bills (Table 2.).

Table 2. Sources of financing the Fiscal Deficit (Rs. Crore)

	2020-21		2021-22
	BE	RE	BE
1.     Market Borrowings	5,35,870	12,73,788	9,67,708
2.     National Small Savings	2,40,000	4,80,574	3,91,927
3.     State Provident Funds	18,000	18,000	20,000
4.     Other Receipts	50,848	39,129	54,280
5.     External Debt	4,622	54,522	1,514
6.     Draw Down of Cash Receipts	(-53,003)	(-17,358)	71,383
Total	7,96,337	18,48,655	15,06,812

3. A comparison between the Government response to the Pandemic in the USA and in India

According to the Economic Survey (2020-21), the Government of India adopted a step-by-step approach to face the unfolding crisis arising from the Pandemic. On the other hand, as the U. S. Government observed the economy sliding into recession by February, 2020 and it took fiscal and monetary measures in quick succession to revive the economy.

In retrospect, it is noticed that while India incurred a fiscal deficit of 9.5% of GDP, the USA incurred a fiscal deficit of 15% of GDP during the FY-2020. Table 3. below provides a broad overview of the initiatives taken by the two governments in the USA and in India.

Table3. Fiscal and Monetary Policies in the USA and in India to face the Pandemic

(A) Fiscal Measures
USA	India
Relief Packages on: I.        March 6, 2020 equal to $8.3 billion II.     March 18, 2020 equal to $3.4 billion III.   March 27, 2020 for $ 2.3 trillion (The biggest ever Relief Package in US history) IV.  April 20, 2020 equal to $484 billion  The above amounts were spent on the followings: a.     Assistance to American families and workers, b.     Assistance to Small Businesses, c.      Assistance to State and Local Governments, d.     Assistance to Research Institutions and American Industry.	The Government did the followings: I.        Raised the food subsidy from Rs. 1,07,320 crores (BE) to 2, 78,338 crores (RE), II.     Raised the expenditure on MNREGA from Rs. 61,500 crores (BE) to Rs. 1,11,500 crores (RE), III.   Increased the expenditure on National Health Mission from Rs. 34,115 (BE) to Rs. Rs.35,554 crores (RE), IV.  Direct cash transfer under Kisan Samman Yojana to 9 crore small farmers got reduced from Rs. 75,00 crores (BE)to Rs. 6500 crores (RE), V.     Assistance under PM-Awas Yojana raised from Rs.27,500 crore (BE) to Rs. 40,000 crores (RE).
(B) Monetary Measures
I.        The Fed cut the inter-bank interest rate by 0.50 per cent on March 3, 2020. It further reduced this rate by another 1 per cent on March 16, 2020. II.     The Fed bought Treasury Bills and Bonds as part of its Quantitative Easing programme to ensure enough liquidity in the market, III.   The Fed reduced the CRR for commercial banks, IV.  The Fed started new lending programme using the U.S. Government’s Exchange Stabilization Fund.	1.     The RBI reduced the repo rate first on March 27, 2020 from 5.15 per cent to 4.4 per cent, 2.     The further reduced the repo rate in May, 2020 from 4.4 per cent to 4 per cent, 3.     The CRR for commercial banks was reduced from 4 per cent to 3 per cent in November 2020, 4.     The RBI injected liquidity in the market amounting to 13.6 lakh crore through various policy measures and Open Market Operations.

4. Conclusion

In the light of the above, it could be asked if the Government of India, along with the RBI, have done more than what it did during 2020-21? A possible criticism that has been leveled against India is that while the policy makers in the USA had their strategy based on the medium-term growth, in the case of India it was merely that of facing the immediate crisis.

Perhaps the state governments, local bodies and hospitals could have been provided with funds to undertake useful works, which they could not do in the absence of funds. Moreover, besides making higher allocations to different welfare programmes, there are the other two concerns that need to be paid adequate attention, namely, (a) optimal allocation of resources and (b) judicious utilization of funds.

The first of these two concerns can always be challenged in terms of a better alternative based on ‘opportunity cost’ argument. It could accordingly be argued that instead of disbursing Rs. 6000/- per small farmer per annum, this amount of Rs. 65,000 crores, at the all-India level, could have been allocated for afforestation under the ‘Green India Mission’ – with better returns.

The second of the two concerns can be examined/questioned based on the internal/external audit. The crisis could have, furthermore, been turned into an opportunity through addressing the inequality in the society. People may have come forward willingly in this direction realizing the we are all in the same boat. There appears, moreover, to be a general agreement on recognizing that there is distress in the agriculture sector despite increase in productivity. This is on account of pressure of population and the declining size of land holdings in rural India.

Simple cash transfers may not be able to solve this issue. An integrated growth strategy may have to be worked out to move people away from agriculture. As it has been observed, ‘The need to “restructure” economic relations are now seen to be at the heart of international as well as national problems of development’ (Chenary,1979).

                                                      References

• Chenary, H.B., ‘Structural Change and Development Policy, Oxford University Press, Delhi, 1979.)

• Economic Survey (2020-21), Ministry of Finance, Government of India, New Delhi, 2021.

• Various Budget Speeches, Ministry of Finance, Government of India, New Delhi, 2021.

• Union Budget (2021-22), Ministry of Finance, Government of India, New Delhi, 2021.