India’s half-a-trillion dollar budget aims to spur growth

Bloomberg

India unveiled a spending plan of almost $500 billion as the government of Prime Minister Narendra Modi seeks to dig Asia’s third-largest economy out of its pandemic-induced slump.
His government’s plan relies on taxes, including higher levies on some imports to boost self-reliance, selling state assets
and dividend income to partly fund the nearly 35 trillion rupee ($480 billion) budget, while skipping any new major taxes. The administration will borrow about 12 trillion rupees to meet the shortfall in the year starting from April 1.
That will push the fiscal deficit to 6.8% of gross domestic product, Finance Minister Nirmala Sitharaman said on Monday as she laid out the plan. That’s wider than the 5.5% forecast in a Bloomberg survey. The deficit will be 9.5% for the current year, against a planned 3.5%, she said.
Bonds fell after the higher-than-expected deficit, with the yield on the most-traded 2030 note rising 12 basis points. Benchmark stocks advanced as much as 5.1% in Mumbai as real estate to road builders and automakers to airline gained on the budget proposals.
“The government is fully prepared to support and facilitate the economy’s reset,” Sitharaman said. “This budget provides every opportunity for our
economy to rise and capture
the pace it needs for a sustainable growth.”
Keeping spending intact is key to reviving growth in the economy, which is headed towards its biggest annual contraction this year. The new budget also comes as the nation’s financial sector faces increasing pressure from a growing pile of bad loans, escalating border tensions with China and widespread anger from farmers.
Sitharaman more than doubled the outlay for health care in the wake of the pandemic, while also keeping the focus on attracting investments and growing businesses. She proposed to increase the foreign investment cap in insurance to 74% from 49%, planned to set up separate firms to manage stressed debt at banks to ensure financial stability and buy investment-grade bonds to boost confidence in the nation’s corporate debt market.
The government will increase capital expenditure — the spending to create new assets — to 5.54 trillion rupees in the next fiscal from a revised 4.39 trillion rupees in the current year, although total spending increased by less than 1 percentage point from this year’s revised estimate of 34.5 trillion rupees.
Sitharaman plans to raise 1.75 trillion rupees selling state assets, including in Life Insurance Corp of India, with some of the divestment plans carried over from the current year after the pandemic disrupted their sales.