NEW DELHI (CU)_The Indian government on Monday (Feb 1) unveiled its annual budget, which suggested that the South Asian nation is ready to spend big time, to redeem the country’s economy which suffered its deepest-ever slump on account of the COVID-19 pandemic.
Being the country with the world’s second-highest Coronavirus infections, India currently spends about 1 percent of GDP on health, among the lowest for any large economy.
Accordingly, Finance Minister Nirmala Sitharaman, who delivered her budget statement to Parliament, proposed increasing healthcare spending to 2.2 trillion Indian rupees ($30.20bn), in order to improve public healthcare systems and facilitate the huge vaccination campaign to immunise 1.3 billion people.
Moreover, the Finance Minister projected a fiscal deficit of 6.8 percent of gross domestic product (GDP) for 2021/2022, higher than the 5.5 percent forecast by a recent poll of economists carried out by the Reuters news agency. On the other hand, she projected a 9.5 per cent deficit for the current fiscal year ending on March 31, much higher than the government’s earlier projection of 7 percent.
“The indications are that the government is going to do more to promote growth rather than maintaining fiscal discipline,” Sujan Hajra, chief economist at Anand Rathi Securities in Mumbai, said.
“This is a welcome move as it will have a positive impact on growth.”
This budget announced on Monday also intends to boost the financial sector, with 200 billion rupees ($2.74bn) being allocated to recapitalise state-run banks that are saddled with bad loans.
Moreover, Sitharaman proposed lifting caps for foreign investment in the country’s vast insurance sector from 49 per cent to 74 per cent, which is likely to attract investment from insurers in the United States and European nations.
In order to bridge some of these deficits the government plans to raise 1.75 trillion Indian rupees ($23.9bn) from selling its stake in state-run banks and firms, including insurance companies and oil firms.
Over the recent past, the country’s financial sector has been facing increasing pressure from escalating border tensions with China, a growing pile of bad loans, as well as the widespread anger from farmers over agricultural law reforms. Moreover, the pandemic severely affected the country’s economy, as millions of people lost their jobs following lockdowns imposed by the government.
The government estimates the economy will contract 7.7 per cent in the current fiscal year but then recover to show 11-per cent growth in 2021/2022. Although this would make India’s economy the world’s fastest-growing large economy, putting it ahead of China’s projected 8.1-per cent growth rate, however, New Delhi says it would take the economy two years to reach pre-pandemic levels.
