In annual budget, India vows to boost spending to revive economy

India is proposing doubling healthcare spending in an annual budget unveiled on Monday and lifting caps on foreigners investing in its vast insurance market to help revive an economy that suffered its deepest-ever slump as a result of the coronavirus pandemic.

Delivering her budget statement to Parliament, Finance Minister Nirmala Sitharaman 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. The current fiscal year ending on March 31 was expected to close out with a deficit of 9.5 percent, she said, much higher than the government’s earlier projection of 7 percent.

India, which has the world’s second-highest coronavirus caseload after the US, currently spends about 1 percent of GDP on health, among the lowest for any large economy.

Sitharaman proposed increasing healthcare spending to 2.2 trillion Indian rupees ($30.20bn) to help improve public health systems as well as the huge vaccination drive to immunise 1.3 billion people.

“The investment on health infrastructure in this budget has increased substantially,” she said as lawmakers thumped their desks in approval.

Millions of people lost their jobs when the government ordered a lockdown last year to combat the coronavirus. The government estimates the economy will contract 7.7 percent in the current fiscal year but then recover to show 11-percent growth in 2021/2022,

That would make it the world’s fastest-growing large economy and put it ahead of China’s projected 8.1-percent growth rate, but the government said it would take the economy two years to reach pre-pandemic levels.

“The indications are that the government is going to do more to promote growth rather than maintaining fiscal discipline,” said Sujan Hajra, chief economist at Anand Rathi Securities in Mumbai.

“This is a welcome move as it will have a positive impact on growth. Also, we are seeing a lot of measures on conditions of doing business which was required. The intent for reforms is also strong.”

Financial sector boost

Sitharaman said the foreign direct investment (FDI) cap for the insurance sector would be increased to 74 percent from the current 49 percent.

She also allocated 200 billion rupees ($2.74bn) to recapitalise state-run banks that are saddled with bad loans and have been a drag on growth.

India’s benchmark 10-year bond yield rose sharply to 6.03 percent from the day’s low of 5.93 percent following the fiscal projections.

To bridge some of the deficit, the government plans to raise 1.75 trillion Indian rupees ($23.9bn) from selling its stake in state-run firms and banks including IDBI bank, an insurance company and oil companies.

The pandemic ruined the divestment plans for the current fiscal year with only 180 billion rupees ($2.4bn) raised so far from the sales.

India’s financial sector faces increasing pressure from a growing pile of bad loans, escalating border tensions with China and widespread anger from farmers, whose protests against agricultural law reforms overwhelmed parts of the capital New Delhi last week.