1) Recalibrate growth, reprioritise expenditures

GS 3: Economy

Backrground: The author talks about protecting total expenditures at the budgeted level and mass vaccination are important in India’s pandemic situation.

What is the Issue:

  • The second wave of COVID-19 currently sweeping India is forcing States into successive lockdowns, in turn eroding economic activities.
  • The growth projections of different national and international agencies and the fiscal projections of Centre’s 2021-22 Budget require recalibration.

COVID-19-induced erosion

  • Various GDP forecasts has been given by different agencies showing a slack growth pattern amidst the second wave of COVID-19.
  • According to International Monetary Fund (IMF), the Reserve Bank of India (RBI), and the Ministry of Finance’s Economic Survey forecast real GDP growth for 2021-22 at 12.5%, 10.5%, and 11.0%, respectively.
  • Moody’s has recently projected India’s GDP growth in 2021-22 at 9.3%.
  • This level of growth may be achieved based on the assumption that the economy normalises in the second half of the fiscal year. If the lockdowns come to an end earlier, the growth rate may be higher.
  • The 2019-20 real GDP was ?145.7-lakh crore at 2011-12 prices. It fell to ?134.1-lakh crore in 2020-21, implying a contraction of minus 8.0%.
  •  If India see a fall in the real GDP in the current year as compared to 2019-20 level but the nominal GDP numbers assumed in the Budget will also be  adversely affecting the fiscal predictions of Centre’s 2021-22 Budget.
  • This will lead to a lowering of tax and non-tax revenues and an increase in the fiscal deficit as compared to the budgeted magnitudes.

Budget magnitudes

  • The auhtor gives the concept of tax buyoancy, budgeted gross and net tax revenues for 2021-22 were ?22.2-lakh crore and ?15.4-lakh crore, respectively.
  • The assumed buoyancy for the Centre’s gross tax revenues (GTR) was 1.2, if this buoyancy is achieved, the lower nominal GDP growth would imply a GTR growth of 15.7% as compared to the budgeted growth of 16.7%.
  • If the buoyancy of 1.2 proves optimistic and instead a buoyancy of 0.9, which is the average buoyancy of the five years preceding the COVID-19 year, is applied, the nominal growth of GTR would be 12.2%.
  • This would lead to the Centre’s GTR of about ?21.3-lakh crore. This might lead to corresponding shortfall in the Centre’s net tax revenues.
  • The budgeted magnitudes for non-tax revenues and non-debt capital receipts at ?2.4-lakh crore and ?1.9-lakh crore, respectively, may also prove to be optimistic. In these cases, the budgeted growth rates were 15.4% and 304.3%, respectively.
  • The excessively high growth for the non-debt capital receipts due to implementing an asset monetisation and disinvestment programme, but this might not be possible in COVID-19 situation.
  • The author furthue talks about budgeted growth in non-tax revenues is  dependent on an assumed growth of 60% in revenues from communication services and of 44.1% in dividends and profits from non-departmental undertakings.
  • There is a possibility that there maybe a shortfall of ?1.5-lakh crore in non-tax revenues and non-debt capital.
  • Two factors will affect the fiscal deficit estimate of 6.76% of GDP in 2021-22. First, there would be a change in the budgeted nominal GDP growth. Second, there would be a shortfall in the receipts from tax, non-tax and non-debt sources.
  • Together, these two factors may lead to a slippage in fiscal deficit which may be close to 7.7% of GDP in 2021-22 if total expenditures are kept at the budgeted levels.

Other steps, vaccination

  • COVID-19 pandemic has brought the shortcomings of our health sector to the light, thus there is an urgent need to ramp up health and related infrastructure by enhancing the number of hospitals and hospital beds, sources of oxygen supplies, and the manufacture of COVID-19 vaccines and drugs.
  • By giving figures of previous and this budget estimates, author argues that there has been a reduction in capital expenditure and revenue expenditure in health sector from last year’s budget expenditure.
  • There is need to spend on construction activities within the health sector . A higher expenditure on inducting a larger workforce of doctors, nurses and paramedics and other hospital-related administrative staff.
  • Strong support is needed for the vulnerable groups of the society including migrant labour and the rural and urban unemployed population.
  • Speedy and larger vaccination coverage of the vulnerable population is key to minimising economic damage.
  • The Centre’s Budget had allocated ?35,000 crore for vaccination for the Department of Finance as an amount to be transferred to the States. But author says that this should be increased.
  • Rather than individual State governments floating global tenders for vaccines, if central government itself does vaccine procurement it might lead to  the economies of scale and the keeping the average vaccine price low.
  • The author suggets, central government may transfer the vaccines rather than the money to the states as some of the smaller States may find procuring vaccines through a global tender quite challenging.

Way forward

The allocation for the health sector should be increased substantially by reprioritising expenditures.This would need  revising the fiscal road map again, there is a need for reprioritising these expenditures.

2) Guarantor beware

GS 3: Economy

Context: The Supreme Court judgment upholding creditors’ right to proceed against personal guarantors to loans provided by them to a corporate borrower helps lift the uncertainty in the financial market.

What’s the matter

  • The financial system of our country which is, under a mountain of bad loans, the recent judgement will help in expediting the resolution of  stressed assets.
  • Thus those entrepreneurs signing guarantee will have to be certain that the business will not flounder.
  • The SC Bench was considering petitions challenging the government’s 2019 notification that made personal guarantors a separate category of individuals who could be proceeded against under the Insolvency and Bankruptcy Code as part of the insolvency proceedings initiated by lenders against defaulting corporate entities.
  •  SC dismissed such petitions,by saying that “carving out personal guarantors as a separate species of individuals”, given the “intimate connection between such individuals and corporate entities to whom they stood guarantee”.
  • Thus banks now stand a real chance of recovering substantially more from the resolution of a stressed corporate entity.


  • Several corporate leaders will be impacted. The promoters of many defaulting corporates, which are facing action under the IBC, had furnished guarantees for thousands of crores in loans availed by the companies they ran.
  • The court furthur clarified that it is bound to strengthen the creditors’ positions in all ongoing, future and even completed insolvency proceedings.
  • The approval of a resolution plan for the corporate debtor does not extinguish the personal guarantor’s liability, as it “arises out of an independent contract”.
  • Lenders can now proceed against the guarantors to enhance recovery given that most banks agree to ‘haircuts’ when negotiating a resolution plan with a new promoter for the defaulting company.
  • Once the resolution plan becomes legally binding, the guarantor loses the recourse to remedy from the borrower when the creditor invokes the personal guarantee.


Thus with the passing of new judgement entrepreneurs will now have to be more careful before signing a personal guarantee unless they can be very certain that the business they found will not flounder.


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