Govt's finances won't be overstretched by Covid vax drive, relief measures: SBI Research

The government’s finances are unlikely to be overstretched by recently announced measures such as free Covid-19 vaccinations for the states and free food grains for poorer sections, with a projected impact of Rs 28,512 crore, according to State Bank of India (SBI) Research.

Revenue from the Goods and Services Tax (GST) and excise duty, largely coming from fuel consumption, was expected to be higher than conservative budget estimates, an SBI Research report said on Monday.

Risks to the higher-than-expected revenue collection outlook included a catastrophic third wave that would impact consumption and any change in the fuel tax structure, it said.


While the good news was that this meant additional fiscal space, “the bad news, fuel prices are acting as a buffer! So, prices may not decline!,” Soumya Kanti Ghosh, SBI group chief economic adviser said via Twitter.

The union government said it would cover the vaccination cost for 75% of the 1.62 billion doses required to vaccinate India’s 810 million-strong adult population.

The bad news, fuel prices are acting as a buffer! So, prices may not decline!

-Soumya Kanti Ghosh, SBI group chief economic adviser

Assuming a cost of Rs 400 per dose, it implies a total cost of Rs 48,851 crore of which the government had already budgeted for Rs 35,000 crore, the report said.

Further, the extension of the Pradhan Mantri Garib Kalyan Anna Yojana till November would put an additional cost of Rs 91,000 crore on the government’s finances for the scheme from May onwards, it said.

Based on the trends in GST collections for April and May, SBI Research estimated that the states’ revenues for FY22 would come up to Rs 8.27 lakh crore against their combined budgeted estimates of Rs 7.67 lakh crore.

This implied that the central government may not have to borrow much of the Rs 1.58 lakh crore as compensation for the expected shortfall in collections, it said, adding the states could even see a marginal revenue gain of Rs 1,311 crore in the absence of a third wave.

On the other hand, a worst case scenario would see the states facing a Rs 79,147 crore shortfall, the report said.

Looking at the 10-year trend in petrol and diesel consumption and accounting for the pandemic-induced disruption, SBI Research said the government would see excise duty revenues touch Rs 4.11 lakh crore this fiscal.

This implied a gain of Rs 76,339 crore over the budgeted Rs 3.35 crore.

“While we do not rule out disruption to Government finances in subsequent months as economic activity only picks up modestly, we believe the space for monetary accommodation is over and only a proactive fiscal policy can rekindle animal spirits and growth,” the report said.