India’s fight against the novel coronavirus pandemic isn’t going very well. Just when the government and its officials had thought that the country is winning the battle against COVID-19, things have started going south in the seventh week of a lockdown that began March 25.
Over 120 million Indians have lost their jobs as economic activity comes to a grinding halt. Many more are likely in the firing line as the government’s decision to contain COVID-19 through two lockdown extensions seems to be failing as caseloads spike. This has raised the possibility of another extension to the current lockdown that’s supposed to end on May 17.
Such a move could deliver a bigger blow to India’s economy and create more pressure on its citizens, who are now facing several difficulties ranging from unemployment, pay cuts, and a government that seems keen to fill its coffers by raising taxes.
The lack of economic activity in India is bound to hurt the government’s coffers. The collection of goods and services tax (GST) is forecast to crash big time for the months of April and May . This is due to a massive drop in the interstate movement of goods, as well as an enormous contraction in India’s services PMI.
As the novel coronavirus pandemic has throttled the Indian government’s source of revenues, it has decided to resort to other avenues to raise money.
The country recently took out a $1.5 billion loan from the Asian Development Bank to fight COVID-19. Other reports suggest that the government may raise 10,000 crore Indian rupees (roughly $1.32 billion) through tax-free bonds.
The government expects to raise another 22,000 crore Indian rupees (roughly $2.9 billion) by selling its equity stake in a couple of publicly-traded Indian companies. If these were not enough, the government has started raising taxes quite heavily on the people.
Delhi, India’s capital, has imposed a staggering “coronavirus fee” of 70% percent on liquor sales. Other state governments are also fleecing liquor purchasers with excessive taxes. Liquor shops in India were shut for nearly 40 days of the lockdown, but as state revenues dried up, governments decided to let them reopen.
But the opening of liquor shops may have defeated the purpose of the lockdown as hordes of people lined up outside those shops to jostle for their share of booze. The purpose of reopening liquor shops was served, as alcohol sales spiked and revenue flowed into state coffers .
Meanwhile, the Indian government has also raised duties on petrol and diesel prices. The state-run oil companies would be absorbing the impact of the hikes so that the prices at the pump remain the same. But with international crude prices in dire straits, India is not passing on the benefit to consumers as the government tries to raise all the funds it can to fight the pandemic.
Since announcing a $23 billion relief package for the poor at the end of March, the Indian government hasn’t been forthcoming with more stimulus packages. It is widely believed that India needs more fiscal stimulus to tide over the coronavirus-driven shutdowns, especially for small businesses that employ millions .
But with the government looking to collect all the money that it can through debt and taxes, it remains to be seen if it can do something significant for India’s economy that’s already in tatters.