NEW DELHI – The world’s largest economies are trying to borrow and spend to get out of the pandemic, from the European Union’s $ 900 billion stimulus package to the $ 1.9 trillion bailout proposed by President Biden.
Then there is India.
Prime Minister Narendra Modi’s government on Monday proposed a budget of almost half a trillion dollars for the 12 months starting April 1, which shows that New Delhi is taking a largely conservative stance. Spending on infrastructure and health is expected to increase significantly, but Modi’s budget also provides for debt relief.
Overall, spending would increase by less than 1% at a time when India is suffering from its worst recession in years while battling the coronavirus. India’s economy, which was once one of the fastest growing in the world, is estimated to have shrunk by almost 8% in the current fiscal year, which will end on March 31.
“I don’t know why the government is so concerned about being fiscally conservative when the whole world is suggesting that this is the time, like no other, to be spendthrift,” said Mahesh Vyas, economist and chief executive of the Economy Monitoring Center. Indiana, based in Mumbai.
“I don’t know of any economist suggesting this line of policy,” he said.
The amount allocated to defense, for example, amounts to just a fraction more than last year, even as Indian and Chinese troops clashed along its highly undefined mountain border.
“This was expected due to the state of the Indian economy, but it will certainly affect military modernization,” said Lt. Gen. DS Hooda, former commander of India on the northern border of the region with Pakistan and China.
In many ways, the budget reflects Mr. Modi’s difficult position. He remains very popular and the country’s opposition parties have failed to seriously challenge him.
But Modi’s strict blockade in March affected the economy. His government says the move saved countless lives, but it also cost jobs. Many people are still out of work or earning less.
He faces thorny challenges on other fronts. For months, farmers have been clamoring at the capital’s borders for lawmakers to repeal a trio of agricultural laws that Modi said was the key to India’s market reforms.
India’s economy faced headwinds long before the pandemic. Between April and December 2019, GDP grew by only 4.6%. Although more mature economies may envy this rate, it marks a slowdown in relation to the years when the country’s production grew between 7% and 8%.
The government could increase spending by taking advantage of low global interest rates to borrow to pay for it. Still, this can trigger inflation, a lingering fear in a country where many families struggle to buy staple foods. A price hike, while much of the 1.3 billion population is already teetering on the edge, could erode the popularity of the Bharatiya Janata de Modi Party.
Arun Kumar, professor of economics at the New Delhi Institute of Social Sciences, said the government is also concerned about a downgrade in credit by international rating agencies, which would make it more expensive for the government to borrow.
Therefore, Modi is eager to put India’s struggling economy in the best possible light. With coronavirus cases and deaths dramatically below the last peak in September, government economists are promising a dramatic recovery.
“India has focused on saving lives and livelihoods, has suffered short-term pain from long-term gains, acknowledged that GDP growth would decline, but then recovered,” said KV Subramanian, the government’s top economic adviser.
This recovery is far from guaranteed. Even if the government’s optimistic forecast of 11% growth is realized in 2022, India’s net growth would be only 3.5% – well below what is needed to employ the millions of young people entering the labor market each year. year.
India’s finance minister, Nirmala Sitharaman, defended the government’s relative frugality on Thursday, saying the budget is just the latest in a series of public interventions aimed at supporting India’s most vulnerable at the same time. which drives consumer demand and small and medium-sized businesses that make up much of the Indian economy.
“We spend, spend and spend,” Sitharaman told reporters on Thursday. “We also show a clear path for managing the deficit and reducing it.”
India’s deficit target is one of the most ambitious targets in the budget. The fiscal deficit, which was 3.5 percent before the pandemic settled in India, jumped to 9.5 percent as the country struggled to increase the manufacture of masks and other protective equipment, as well as tests for coronavirus and expanding cash donations and food rations to about 800 million people. Ms. Sitharaman intends to reduce the fiscal deficit to 6.5%.
Despite the lack of large overheads, investors found a lot to like in the budget. He calls for an increase in spending by farmers – a priority given the protests outside New Delhi in recent weeks – and further privatization of state-owned companies. After the budget was presented, the main index of the Bombay Stock Exchange increased by 5%.
Some economists remained skeptical. They cited studies like the one at Azim Premji University, which found that of those who lost their jobs between April and May, one in five is still unemployed.
Kumar, of the Institute of Social Sciences, said the government should be more concerned with the coup in the informal sector – people who run stores, drive rickshaws or don’t appear on companies’ payrolls. Because of the lack of data, the impact on their livelihoods may be much greater than imagined.
“The main components of the economy are still low,” said Kumar, adding that the informal parts of the economy “have decreased substantially.”