Health, infrastructure and fiscal deficit

SINGAPORE – India’s finance minister, Nirmala Sitharaman, presented the country’s budget on Monday for the fiscal year beginning April 1 and ending March 31, 2022.

In her speech to Parliament, she proposed more than doubling India’s spending on health and well-being to 2.2 trillion rupees ($ 30.1 billion). That includes a new federal scheme with an expenditure of 641 billion rupees over six years to build the country’s capacity for primary, secondary and tertiary care, as well as strengthen national institutions and create new ones to detect and cure new diseases, he said. Sitharaman.

India’s spending on health, as a percentage of its GDP, is comparatively much lower than many other countries.

The budget comes at a time when India’s growth prospects remain uncertain. South Asia’s largest economy sank into a technical recession last year due to a long blockade to slow the spread of the coronavirus outbreak. India’s statistics ministry said last month that advanced data indicates that the economy has still shrunk 7.7% in the current fiscal year.

“I want to state with confidence that our government is fully prepared to support and facilitate the reinitialization of the economy,” Sitharaman told Parliament. “This budget offers every opportunity for our economy to accelerate and capture the pace it needs for sustainable growth.”

The budget will allocate 350 billion rupees for Covid-19 vaccines and the government is committed to providing more funds, if necessary, according to the finance minister.

India last month launched a mass immunization program that aims to inoculate 300 million people in its first stage, most of them frontline workers and those over 50 or in high-risk groups. The country has the second highest number of Covid-19 cases in the world, with more than 10.7 million infections reported. But the data suggests that the number of new cases reported is falling.

In addition to healthcare, Monday’s budget also focused on infrastructure spending, as well as plans to create a financial institution to finance these expenditures, monetize assets, recapitalize banks, among others.

“The infrastructure needs long-term debt financing,” said Sitharaman. “A professionally managed development finance institution is needed to act as a provider, enabler and catalyst for infrastructure financing.”

She added that she will present a bill to set up the institution with 200 billion rupees to capitalize it.

Sitharaman said the government’s fiscal deficit for the current fiscal year due to end on March 31 is estimated at 9.5% of GDP, which far exceeded the targets set in recent years before the pandemic.

To ensure that the economy gets the boost it needs, the finance minister said for the next fiscal year, the deficit target would be around 6.8% of GDP – which includes about 5.54 trillion rupees (about of $ 80 billion) in capital expenditures, an increase of 34.5% from a year ago.

The budget’s focus on health and infrastructure spending was in line with what many economists expected.

“The timely implementation of the abundance of well-targeted budget announcements will be the key to sustaining the resumption of nascent growth that is underway and helping the Indian economy to achieve a higher growth path in the medium term,” said Aditi Nayar, chief economist at credit rating agency ICRA, Moody’s Indian affiliate.

Some of the measures announced on Monday include:

• A new federal scheme with an expenditure of 641 billion rupees in six years to develop the country’s capacity for primary, secondary and tertiary care.
• Support to 17,788 rural and 11,024 urban health and welfare centers, as well as to strengthen the National Center for Disease Control
• A five-year drinking water supply program in urban areas and liquid waste management has allocated 2.87 trillion rupees.
• Voluntary vehicle dismantling policy to eliminate old vehicles that contribute to poor air quality in India.

• The government will commit 1.97 trillion rupees over five years to an existing incentive scheme linked to production that aims to improve the scale and size of important sectors.
• Monetization plans for public infrastructure assets, including rail freight corridors and airports.
• An allocation of 1.18 trillion rupees to the Ministry of Roads and Highways, most of which will be earmarked for capital expenditures.
• An allocation of 1.1 trillion rupees for railways, most of which for capital expenditures.
• About 3 trillion rupees in five years would be allocated to renew India’s energy distribution sector.

• India will ease the limit on foreign direct investment in the insurance sector from 49% to 74%.
• Public sector banks will receive an infusion of 200 billion rupees for recapitalization.
• An asset reconstruction company will be created to take over existing toxic assets and find ways to manage and dispose of them in alternative investment funds.
• Plans to make two public sector banks and a general insurer private as part of the government’s divestment strategy.
• About 15 billion rupees will be allocated to promote the use of digital payments.