India Vows To Remain In Fiscal Consolidation Path Despite Huge Healthcare Outlay

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India’s Finance Minister Nirmala Sitharaman on Monday said the government will stick to the fiscal consolidation path despite raising spending on healthcare to face the challenges posed by the coronavirus pandemic.

The government intends to reach a fiscal deficit level below 4.5 percent of GDP by 2025-2026 with a fairly steady decline over the period, she said in her 2021-22 budget speech in the parliament.

The fiscal deficit estimate for 2020-21 was revised to 9.5 percent of GDP versus 3.5 percent estimated earlier. The minister attributed the bigger deficit to higher expenditure to support the people and economy and weak revenue inflows amid the coronavirus pandemic.

The deficit was funded through government borrowings, multilateral borrowings, small saving funds and short term borrowings, she said.

The government will borrow an additional INR 800 billion to fund the deficit in the current fiscal year.

The government aims to lower the fiscal deficit to 6.8 percent of GDP in the fiscal year starting April and eventually to 4.5 percent by the fiscal year 2026.

The gross borrowing from the market for the next year would be around INR 12 trillion, the minister said.

Sitharaman said the preparation of the budget was undertaken in circumstances like never before.

For Covid-19 vaccination, the government has allocated INR 350 billion. The government is committed to provide further funds if required, the minister said. The outlay for health care was raised by 137 percent relative to the previous budget.

The government announced a plan to set up a bad bank to manage the stressed assets of public sector banks. The bad bank will then sell bad loans to other potential investors at a reduced price.

Further, the minister announced proposal to privatize two public sector banks and one general insurance company in the year 2021-22. The government intends to bring the initial public offering of the life insurance major the Life Insurance Corporation in fiscal year 2022.

Further, the government allotted INR 200 billion for bank capitalization.

The government plans to lift the foreign direct investment limit in insurance companies to 74 percent from 49 percent.

The finance minister also unveiled a voluntary vehicle scrapping policy to phase out old and unfit vehicles which have been on the road for over 20 years.

In order to provide more funds to farmers, Sitharaman raised the agriculture credit target to INR 16.5 trillion.

Further, she proposed an Agriculture Infrastructure and Development cess on a small number of items.

The government rationalized customs duty on gold and silver.


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