Governance and Economic Impact of Covid-19 in Indian Federation

Published date01 September 2021
Date01 September 2021
Subject MatterArticles
Governance and Economic
Impact of Covid-19 in
Indian Federation
V. N. Alok1, Madhulika Jatoliya1 and
Animesh Pareek1
In the year 2019–2020, Indian economy was already on its trough and the inci-
dence of coronavirus pandemic in 2020–2021 has further deteriorated the eco-
nomic condition, limiting the fiscal space of the government. As need of the
hour was to take some supportive measures to handle such an unusual situation,
therefore various monetary and fiscal measures were taken by the government
to overcome the impact of the pandemic. This resulted in overshooting of the
fiscal deficit target set under the Fiscal Responsibility and Budget Management
(FRBM) Act (2003) and made the government to revise its fiscal deficit target of
3.5% of Gross Domestic Product (GDP) in 2020–2021 Budget Estimates (BE)
and 9.5% in 2020–2021 Revised Estimates (RE), and further it is projected as
6.8% of GDP for 2021–2022 (BE). After an estimated 7.7% pandemic-driven con-
traction in 2020–2021, India’s real GDP is projected to record growth of 11.0%
in 2021–2022 and nominal GDP by 15.4%. The government is expected to gener-
ate 23% more revenue and has budgeted to increase its spending by only 0.95%
in FY22 as compared to FY21 (RE). In order to deal with pandemic situation, the
economists have suggested more active, counter-cyclical fiscal policy to enable
growth during economic downturn. However, due to lack of revenue sources,
it also becomes important to strategise the path for fiscal consolidation for the
ensuing years.
Covid-19, Economic Impact, Federal, Fiscal def‌icit, FRBM, Governance, India
The situation of coronavirus pandemic has been described as once-in-a-century
crisis where the governments across economies have taken numerous fiscal and
Indian Journal of Public
67(3) 452–469, 2021
© 2021 IIPA
Reprints and permissions:
DOI: 10.1177/00195561211045099
1 Indian Institute of Public Administration, New Delhi, India.
Corresponding author:
V. N. Alok, Associate Professor in Indian Institute of Public Administration, New Delhi.
Alok et al. 453
monetary measures to minimise the economic impact of the pandemic. In India
too, the government has deployed a range of macroeconomic policy responses to
deal with the economic crisis, resulting both from supply side disruptions and
reductions in aggregate demand. As an economic revival strategy, the Government
of India (GoI) announced a series of Aatmanirbhar Bharat or Self-Reliant India
(ANB) packages. According to the Budget 2020–2021 presented by finance min-
ister of India, the total financial impact of all ANB packages, including measures
taken by Reserve Bank of India (RBI), was estimated to be about `27.1 lakh crore,
which amounts to more than 13% of the GDP.
The impact of pandemic resulted in weak tax and non-tax revenue inow and
an expanded expenditure. According to the Union Budget FY22, Centre’s non-tax
revenues were estimated to contract by (–)35.6% in FY21 (RE) over FY20 actuals.
While the ow of tax revenue from direct tax, Corporate Income Tax (CIT),
Personal Income Tax (PIT) and indirect taxes, especially GST, also contracted.
Thus, such a scenario compelled the government to provide essential relief to
vulnerable sections of the society and required it to push the scal constraints of
the economy.
In such a scenario, it becomes pertinent to take a review of the scal situation
of the economy in pre-Covid-19 period; how it is going to be in next few years
given the Covid-19 impact; and what strategy the government is going to adopt
for the ensuing years for scal consolidation. In addition, it is not only about the
levels of decits but also revamping the nancing pattern of decit which is
Against this backdrop, the study is organised in seven sections. Besides the
introduction, the second section reviews the Indian economy in pre-Covid-19
period. The third section explains the outbreak of coronavirus pandemic globally
and in India. The fourth section gives details of the preventive measures taken by
the government to deal with the pandemic. The fth section examines the
economic impact of coronavirus pandemic during 2020–2021. The sixth section
deals with the Covid impact on states. Finally, the last section concludes by giving
scal strategy for ensuing years as suggested by the Union government and the
Fifteenth Finance Commission.
Economy in 2019–2020: A Year Before the Pandemic
Output Growth
On an average, the economy grew at 6.7% in the last five years. Looking at the
performance of the Indian economy in the year before the Covid-19 pandemic,
which hit worldwide, one can observe that the growth was already low as com-
pared to the preceding years. In the year 2019–2020, the Indian economy
registered an 11-year low of 4% whereas in the year 2018–2019, the economy
expanded at 6.8%.
According to the revised estimates released by the National Statistical Ofce
(NSO) for the year 2019–2020,1 the growth of real Gross Value Added (GVA) in

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