India's broad range of fiscal, monetary and health responses to the crisis are helping mitigate a longer-lasting adverse impact of the COVID-19 pandemic

Even as India's macroeconomic situation improves, it may not yet be the time to celebrate. The possibility of a third wave of the coronavirus pandemic is being weighed cautiously by International Monetary Fund, World Bank and the government of India.

World Bank sees a rise in global extreme poverty, and a large number of people are subsisting on $1.90 a day, below the Bank's standard of $2 a day.

However, the IMF says India's economy is poised for a rebound after enduring a second wave of COVID-19 infections this year that further constrained activity and took a heavy toll on its people.

"What happens in India has a big impact, both in the region and in the world," Luis Breuer, IMF's senior resident representative to India, says. "You're talking about a large slice of humanity and the global economy."

India's broad range of fiscal, monetary and health responses to the crisis supported its recovery and, along with economic reforms, are helping to mitigate a longer-lasting adverse impact of the crisis, according to the latest annual review by IMF.

Though policy steps helped mitigate the pandemic, it is still likely to result in greater poverty and inequality. And the path of recovery will follow the path of the virus.

New infections have fallen significantly and vaccination rates have risen to surpass a billion doses, although another resurgence is not impossible even if it seems unlikely today. "There's a lot of uncertainty about COVID," Breuer said. "We cannot rule out future waves".

Despite large increases in India's central budget the state budgets are presenting problems with contraction of revenues and rising deficits. It contracted by 16 per cent in 2020-21. It has been falling since 2018-19 by 13.1 per cent.

In the face of dwindling revenue receipts, RBI observes, states took recourse to expenditure compression. As a result, developmental expenditure on crop husbandry, water supply and sanitation, social security and welfare housing and rural development was squeezed. Simultaneously, capital expenditure was cut in key social and economic services including medical and public health, irrigation and flood control, transport and rural development. This underscores the need for raising additional resources.

Director of the National Institute of Public Finance and Policy (NIPFP), Pinaki Chakraborty, expressing concern, says inflation may remain at an elevated level as there was a significant fiscal and monetary expansion in the last 18 months. It simply means money circulation has increased and inflation may not be easy to check. So, the country has to make strides amid high prices and not so high income levels. Once again, the government as it has done now, may have to extend the dole to public on various counts and income support.

Finance Minister Nirmala Sitharaman precisely for this reason placed the second batch of supplementary demands for additional spending of Rs 3.73 lakh crore. This involves higher than expected cash outgo of Rs 2.99 lakh crore. The rest would be through cut in expenditures.

The items of additional expenditure include Rs 62057 crore for past liabilities of Air India, Rs 58430 crore for fertiliser subisidies, Rs 49,805 crore for department of public distribution and food. A significant recovery of Rs 13901 crore recovery was made from fugitives, Vijaya Mallya, Nirav Modi and Mehul Choksi.

Despite this, Chakraborty points out that in the fiscal year 2020-21, the deficit of all levels of government is estimated to be 14 per cent of GDP and the same is estimated to be around 10 per cent of GDP in 2021-22.

Fiscal deficit may exceed Rs 15.1 lakh crore, according to ICRA despite the proposed cut in many expenses termed as savings. The high borrowings may have an impact on finances and would require high-paced growth to check the difficult effects on finances and economic conditions in the years ahead. It means the sailing for the common man may not be easy with possible impact on consolidation of the economy due to higher debt servicing cost and further increase in the process of running the government.

The greatest problem is in increasing consumption demand. It accounts for 50 per cent of the total GDP. In the second quarter private final consumption expenditure registered a growth of 8.64 per cent year on year compared to 11 per cent contraction a year back. It indicates an enhanced economic performance. This is followed by increase government financial consumption expenditure growth of 8.7 per cent against contraction of 23.9 per cent in 2020-21.

Agriculture shows a growth of 4.49 per cent and manufacturing, 5.5 per cent.

Everything, however, is not in shape. World Bank finds that debt loads in emerging market and developing economies have spiked during the pandemic. The challenge is acute, says Global Economic Prospects, and comes after a decade that saw the fastest, biggest and broadest expansion of debt levels around the world.

A concern is that developing economies will need to be careful as they would have to withdraw post-pandemic fiscal support and look to increase the efficiency of public spending.

The WB says that debt burden will be felt long after the virus abates, as servicing costs rise, slowing recoveries and hindering efforts to address other development challenges. The concerns are equally good for India.

In reality, it says that there is more debt than what meets the eye because "it is not a very straightforward exercise".

Global debt surveillance today depends, WB says, on a patchwork of databases with different standards and definitions. They contain large gaps: the report shows that publicly available tallies of debt stocks in low-income countries can vary by as much as 30 per cent of a country's GDP because of divergent definitions and standards in local and international databases.

India's most projects are having high debt and have their problems. Omicron is being watched carefully. It has its impact on the stock market and if there is another lockdown, the cost could be higher. India remains important to world economy, as IMF representative Luis Breuer says. So, a positive growth for India would decide the future. The New Year has hopes, concern and the key to unravel it.

(The writer is a senior journalist. The views expressed are personal.)