FINANCIAL PLAN: HIGHLIGHTS OF INDIA BUDGET INSIDE
INDIA PUSHES SPENDING AND LIFTS INVESTMENT CAPS TO HELP COVID-HIT ECONOMY RECOVER
THE Indian government boosted healthcare spending by 135 per cent and lifted caps on foreign investment in its insurance market on Monday (1) to help revive an economy that suffered its deepest recorded slump due to the pandemic.
Delivering the annual budget statement to parliament, finance minister Nirmala Sitharaman projected a fiscal deficit of 6.8 per cent of gross domestic product (GDP) for 2021-22. The current year was expected to end with a deficit of 9.5 per cent, she said, well up from the seven per cent expected earlier.
“This budget provides every opportunity for our economy to raise and capture the pace that it needs for a sustainable growth,” Sitharaman told parliament.
Prime minister Narendra Modi said the budget was aimed at creating “wealth and wellness” in the country.
India currently spends about one per cent of GDP on health, among the lowest for any major economy. As of 2017, the country had 0.8 doctors per 1,000 people, around the same level as Iraq, according to the World Bank.
Sitharaman proposed increasing healthcare spending to `2.2 trillion (£22bn) to help improve public health systems and fund a huge vaccination drive to immunise 1.3 billion people.
Overall, the government set capital expenditure for 2021-2022 at `5.54tr, 35 per cent more than the previous year’s budget estimate.
“All of us decided to give impetus to the economy and that impetus, we thought, would be qualitatively spent and give the necessary demand push if we choose to spend big on infrastructure,” Sitharaman told reporters after she presented the budget in parliament.
Infrastructure was another big-ticket item in the budget, with $76bn (£55.6bn) – 34.5 per cent more than in the previous budget – to be spent on major projects, including roads and railways. To bridge some of the deficit, the government plans to raise `1.75tr from selling its stake in state-run companies and banks including IDBI Bank, an insurance company as well as oil companies. It also wants to sell state firms’ surplus land.
Divestments – including of national carrier Air India and part of the government’s stake in the country’s largest insurer, Life Insurance Corporation – would help raise $24bn (£17.5bn), Sitharaman said. But the sales of both state-run firms have been on the cards, with the mooted IPO of the insurer sparking a walk-out by nearly 100,000 staff last year.
The pandemic ruined the divestment plans for the current fiscal year with only `180bn raised so far from the sales. Stake sales and privatisation have seldom met targets in India, due partly to resistance from unions and political opposition.
The minister also allocated `200bn to recapitalise state-run banks that are saddled with bad loans and have been a drag on growth.
Social security benefits, including minimum wages, would be extended to workers in the gig economy, which has flourished amid cheap mobile data and abundant labour. Millions of people lost their jobs when the government ordered a lockdown last year to combat the coronavirus. Thousands of small businesses remain shut.
Unlike other countries, India refrained from announcing a big stimulus, offering greater liquidity to firms instead, and held off using its fiscal firepower until curbs to contain the virus were lifted.
The government estimates the economy will contract 7.7 per cent in the current fiscal year ending in March, in what would be the biggest fall ever recorded. However, it foresees a strong recovery in 2021-2022 with growth of 11 per cent.
That would make it the world’s fastestgrowing major economy ahead of China’s projected 8.1 per cent growth, but the government said it believes the economy would take two years to reach pre-pandemic levels.
“In a time of unprecedented economic stress, the government’s responsibility was to spend enough to revive the economy or else face enormous human suffering,” said Anand Mahindra, chairman of Mahindra group, an autos to technology conglomerate. “So I had one expectation from this budget – that we should be very liberal in terms of the targeted fiscal deficit. Box ticked.”
India’s main stock indexes surged after the budget was announced. The bluechip NSE Nifty 50 index was 4.7 per cent higher in its best performance on budget day in at least two decades. The S&P BSE Sensex climbed five per cent.
But, bond yields jumped after the government announced plans to raise additional funds from the market over the next two months.
Sitharaman also said the foreign direct investment (FDI) cap for the insurance sector would be increased to 74 per cent from the current 49 per cent.
In its annual economic survey, the government said there would be a “V-shaped” recovery after the severe contraction.