NEW DELHI: India boosted its healthcare spending by 135 per cent in a budget unveiled on Monday (Feb 1) and lifted caps on foreigners investing in its vast insurance market to help revive an economy that suffered its deepest recorded slump as a result of the COVID-19 pandemic.
Delivering her budget statement to parliament, Finance Minister Nirmala Sitharaman projected a fiscal deficit of 6.8 per cent of gross domestic product for 2021/2022, higher than the 5.5 per cent forecast by a recent Reuters poll of economists.
The current year was expected to end with a deficit of 9.5 per cent, she said, well up from the 7 per cent expected earlier.
Prime Minister Narendra Modi said the budget was aimed at creating "wealth and wellness" in a country that is battling the world's second highest coronavirus caseload after the United States.
India currently spends about 1 per cent of GDP on health, among the lowest for any major economy.
Sitharaman proposed increasing healthcare spending to 2.2 trillion Indian rupees (US$30.2 billion) to help improve public health systems and fund a 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.
Overall, the government set capital expenditure for 2021/2022 at 5.54 trillion rupees, 35 per cent more than the previous year's budget estimate.
Millions of people lost their jobs when the government ordered a lockdown last year to combat the coronavirus.
Unlike other countries, India refrained from announcing a big stimulus, offering greater liquidity to firms instead, and holding off the 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 but then recover to show 11 per cent growth in 2021/2022.
That would make it the world's fastest growing major economy ahead of China's projected 8.1 per cent growth, but the government said it would take the economy 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."
THUMBS UP FROM MARKETS
India's main stock indexes surged. The blue-chip NSE Nifty 50 index was 4.75 per cent higher by 9.45am GMT (5.45pm Singapore time), and was set to clock its best one-day gains since April last year. The S&P BSE Sensex climbed 4.94 per cent.
But, bond yields jumped after the government announced plans to raise additional funds from the market over the next two months.
Sitharaman said the foreign direct investment (FDI) cap for the insurance sector would be increased to 74 per cent from the current 49 per cent.
She also allocated 200 billion rupees (US$2.74 billion) to recapitalise state-run banks that are saddled with bad loans and have been a drag on growth.
"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.
To bridge some of the deficit, the government plans to raise 1.75 trillion Indian rupees from selling its stake in the state run companies and banks including IDBI bank, an insurance company and oil companies. It also wants to sell state firms' surplus land.
The pandemic ruined the divestment plans for the current fiscal year with only 180 billion rupees 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.
Gene Fang, associate managing director, sovereign risk group, Moody's Investors Service, said the budget announcements did not change the credit rating agency's stance on India. Moody's rates Indian sovereign debt at "Baa3" - the bottom rung of investment grade ratings - with a "negative" outlook.