TOPIC:Trends of Government expenditure in India

during COVID-19 Pandemic: An overview

NAME: TANISHQ ARORA

ROLL NUMBER: 2182100
BRANCH: BBA LLB
SUBJECT CODE: LW 1318
SUBJECT TEACHER: Dr. SNIGDHA SARKAR
Trends of Government expenditure in India during
COVID-19 Pandemic: An overview
The international economy has suffered greatly in the last two years as a result of the
COVID-19 pandemic. Infectious epidemics, supply-chain disruptions, and, more
recently, inflation have all complicated policymaking. When confronted with these
problems, India's first response was a series of safety-net programmes aimed at
reducing the impact on the country's most disadvantaged residents and enterprises. It
then pushed through a significant increase in infrastructure spending, as well as
aggressive supply-side policies, to revive medium-term demand and set the economy
for long-term growth.

New waves of infections and mutant COVID-19 strains, the slow speed of vaccination
in different regions of India, and visceral vaccine protectionism have all led to the
global and domestic outlook becoming bleak and obscured once more, with enormous
uncertainty and risk. There had been over 167 million confirmed illnesses and over
3.4 million fatalities globally by May 23, 2021, with India responsible for over 26
million infections and 3,03,720 deaths. Country experiences are progressively
emphasising the vital importance of fast and widespread vaccination in a conflict
situation - the virus will continue to mutate as long as humans are present; no one is
safe until everyone is safe.

Much has been written about how COVID-19 affects people in developed countries,
but far less has been written about what is happening in developing countries.
Interestingly, rather than ventilators or ICU staff, the first images of COVID-19 that
India associated with are migrant workers hauling their belongings back to their
villages hundreds of kilometres away. With the majority of the economy locked
down, India's labour market was clearly unstable. In the first wave, an estimated 10
million people returned to their towns, with half of them walking or bicycling.
According to the “International Labor Organization”, the economic downturn is
putting 400 million Indians at risk of falling into poverty.

In the year 2020, COVID-19, a virus with a diameter of 0.12 microns, blanketed the
global economic sky. The virus would have caused over 128 million illnesses and 2.8
million deaths world wide by the end of March 2021. As some parts of the world
prepare to face fresh waves of illnesses and fast transmissible mutations, the year
2021 has begun with both optimism and concern. Simultaneously, the approval of
several vaccines has inspired vaccination programmes all across the world, with
variable degrees of success. Despite the fact that vaccine producers are struggling to
keep up with mutations, around 600 million immunisation doses have already been
distributed (March 31, 2021). In the end, 2020 will be regarded as the year of the
'Great Lockdown,' with output losses far outnumbering those seen in previous years.

Global output fell by (-) 3.3 percent in 2020, the greatest drop since the Great
Depression, with GDP falling by 4.7 percent in developed countries and 2.2 percent in
developing countries. Globally, the volume of goods and services traded fell by 8.5
percent. CP inflation in economies declined by half year on year, but remained
relatively stable in EMDEs, owing to higher non fuel commodity costs. Crude oil
prices, have dropped by more than 33% this year.

India's GDP is expected to increase by 4% in real terms this year, according to

preliminary estimates.

Following a decline in 2020-21, the economy will expand by 9.2% in 2021-22. This
suggests that overall economic activity has recovered to pre-pandemic levels.

Despite the fact that the health impact was far harsher, almost all statistics indicated
that economic impact of the "second wave" in Q1 was significantly smaller than that
of the entire lockdown period in 2020-21.

Agriculture and related businesses, which are expected to grow by 3.9 percent in
2021-22 after growing by 3.6 percent the previous year, are expected to be the least
affected by the pandemic. According to preliminary estimates, industry's GVA (which
includes mining and manufacturing) will expand faster than other sectors.
Construction will increase by 11.8 percent in 2021-22 after dropping by 7% in 2020-
21.

The pandemic has wrecked havoc on the services industry, especially those segments
that deal with human interaction. After a decline of 8.4% the previous fiscal year, this
industry is predicted to grow by 8.2% this fiscal year.

In the years 2021-22, total consumption is expected to expand by 7.0 percent, with
large contributions from government spending. As a result of increasing public
infrastructure spending, “Gross Fixed Capital Formation” also exceeded pre pandemic
levels. So far in 2021-22, both goods and service exports have been quite strong, but
imports have rebounded significantly as a result of increasing local demand and
higher international commodity prices.

Government spending is a possible source of worry during uncertain times. However,

India's financial markets, like many others countries around the world, have
functioned admirably, allowing Indian businesses to raise record levels of risk capital.
Even with the pandemic's delayed impact, the financial industry is well-funded, and
the non-performing asset overhang appears to have shrunk structurally.

“The pace of decline reduced as limitations were gradually eased and the economy
reopened in Q2, and GDP recovered to positive territory in Q3 of 2020-21. Good
corporate performance in Q2 and Q3 2020-21, the roll-out of a massive immunisation
programme, fiscal and monetary stimulus, and surges in capital inflows boosted the
BSE sensex, which climbed over 91 percent from its March 2020 lows by end-March
2021”.

In both wealthy and developing economies, inflation has resurfaced as a major

concern. In December 2021, India's Consumer Price Index inflation was 5.6 percent,
which was within the intended range. Wholesale price inflation, on the other hand, has
been in the double digits. Despite the fact that this is mostly due to base effects that
will eventually balance out, India must be wary of imported inflation, especially as
global energy costs rise.

Another characteristic of India's strategy has been a focus on supply-side

improvements rather than relying solely on demand control. Deregulation of a range
of industries, process simplification, and the elimination of legacy issues such as the
"retrospective tax," privatisation, and production-linked incentives, among others, are
among the supply-side improvements. In their respective chapters, these have been
thoroughly examined. Even the government's significant increase in capital spending,
which creates infrastructure capacity for future growth, can be seen as a demand and
supply rising reaction.

In February 2021, the National Statistical Office (NSO) released its second advance
estimate (SAE), reporting that aggregate demand declined by 8.0 percent in 2020-21,
as measured by real GDP. This is the most severe contraction since 1980-81. When
the lockdown was imposed to limit the spread of COVID-19 was fully applied in the
first part of 2020-21, the contraction was on the order of 15.9%.

Since the outbreak, monetary policy has been fine-tuned to provide a cushion and
sustain growth while avoiding the medium-term dislocations caused by excess
liquidity. Following a 135-bps reduction the previous year, the “Monetary Policy
Committee (MPC) cut the policy repo rate by 115 basis points (bps) from February to
May 2020. Since then, the MPC has maintained the status quo on the policy repo rate,
keeping it at 4%. The bank rate and the marginal standing facility rate have remained
unchanged at 4.25 percent, while the reverse repo rate has remained unchanged at
3.35 percent”.

In its most recent MPC statement, the RBI stated that it will maintain its
accommodative posture for as long as it is necessary to sustain long-term growth.
Over time, additional efforts were taken to ensure that the system had enough
liquidity to allow the state and federal governments to fund itself at reduced rates.

In Q2:2020-21, a significant recovery in the seasonally adjusted annualised growth

rate (SAAR) suggested a progressive restoration of demand conditions, indicating a
resumption of momentum. As evidenced by a rise in GDP's three-quarter moving
average in Q3:2020-21, this trend persisted in the following quarter.
Compositional changes among constituents generated the swings in aggregate demand
circumstances in 2020-21. For the first time in nearly four decades, “Private Final
Consumption Expenditure (PFCE)” dropped. In 2020-21, “Government Final
Consumption Expenditure (GFCE)” supported aggregate demand, but its role declined
as government finances deteriorated. The current level of uncertainty and the
imposition of lockdown were the primary causes of the drop in gross fixed capital
formation (GFCF). Although the external sector decreased significantly, overall net
exports contributed favourably to aggregate demand since imports fell faster than
exports.

A crucial feature of the safety net was the utilisation of government guarantees to give
access to financial support to the economy overall and MSMEs in particular. The
administration avoided a payment standoff that could have resulted in a cascading of
defaults by coupling it with a prohibition on insolvency proceedings. The RBI and the
government extended much of the liquidity assistance until 2021-22 where it was
required, but as the economy is recovering, some of the liquidity aid has expired,
allowing the bankruptcy process to continue. This is critical because excess liquidity
and a stalled bankruptcy action are long-term threats.

The mining sector also shrank dramatically due to mobility limitations, a lack of
demand, and labour supply constraints. The coal industry, which was spared from the
lockdown, was an anomaly that shown considerable resilience.

In contact-intensive industries, such as hotels, restaurants, and passenger

transportation, the contraction was severe, with activity remaining far below pre-
COVID-19 levels. Trading operations have recovered quickly, as evidenced by the
collection of the “Goods and Services Tax (GST)” and the issuance of E-way bills.
The freight traffic has also benefited as a result of this. Companies in the information
technology (IT) sector have outperformed their rivals in the hotel and aviation sectors.

Pandemics of influenza have previously occurred in waves. COVID-19 has been

detected in two or more waves in a number of countries around the world. Each of
these trips entails difficult trade-offs between preserving lives through restricted
measures and preserving livelihoods through their avoidance. As the present viral
waves sweep across the globe, this is the conundrum that everyone is facing. This
dangerous scenario does not exclude India. Daily new infections have recently started
to drop, in keeping with statistical equations based on epidemiological regularities
that forecast India's second wave would spike by mid-May 2021, while the frequency
and replication factor remain dangerously high.

Nonetheless, the enormity of the misery and human lives lost has left scars and
important lessons for the future, including continual pandemic surveillance — it is not
going away anytime soon; Investing in development and research as vaccine
developers/producers are challenged by new virus variants is a primary concern for
increasing spending on health care and infrastructure facilities; rapidly roll out of
vaccines and vaccination while stocking up; and rapidly roll out of vaccines and
vaccination while stocking up; prudent and proactive planning "The Drugs Controller
General of India (DCGI)" has authorised the use of “Russia's Sputnik V” spacecraft in
India beginning April 13, 2021, in order to speed up the vaccination push.
Furthermore, beginning May 1, 2021, all Indian citizens overIn order to enhance
vaccine coverage, people under the age of 18 will be eligible for vaccination. Vaccine
manufacturers have been given the option of selling up to 50% of their inventory on
the open market or to states at a set price. Vaccine pricing has been liberalised in
order to facilitate vaccine scale-up and attract new players to the market.

The grievance redressal process will be open 24 hours a day, seven days a week
throughout the pandemic, ensuring that complaints against REs be swiftly and
thoroughly resolved, even during the lockdown and gradual unlock. The Reserve
Bank will place a higher priority on enhancing customer services, and banks' internal
grievance redressal procedures will be assessed as part of a strategy for improving
grievance redressal mechanisms. In the coming year, efforts to educate and raise
awareness about consumer protection will continue.

Despite the effects of the pandemic, "India's balance of payments" has been in surplus
for the past two years. The "Reserve Bank of India" was able to maintain its foreign
exchange reserves, which totaled “US$634 billion as of December 31, 2021”. This is
equal to 13.2 months of imports and exceeds the country's external debt. India was the
world's fourth largest foreign exchange reserve holder at the end of November 2021,
behind China, Japan, and Switzerland. As reserves increased, indicators of external
vulnerability such as “foreign reserves to total foreign debt”, “short-term debt to
foreign currency reserves”, and so on improved.