Business & Economy

India expected to increase public spending in post-pandemic budget

New Delhi, Jan 31 (efe-epa).- Economists and experts expect the Union Budget of India, set to be presented by the government on Monday, to include greater public spending with a special emphasis on the health sector in order to rescue the country’s economy.

In its annual economic survey released on Friday, the Indian finance ministry predicted that the national GDP would contract by 7.7 percent during the current financial year – set to end in March – mainly due to a massive slump during the first quarter (between April and June 2020), when the GDP recorded its biggest contraction in history by dropping 23.9 percent.

However, the government expects a V-shaped recovery with growth predicted to rebound to 11 percent in the financial year 2021-22 as per the economic survey, although analysts have warned that this may not be enough unless accompanied by a solid expansionary fiscal policy by the government.

“During economic crises, a well-designed expansionary fiscal policy stance can contribute to better economic outcomes,” said the India Ratings and Research consultancy run by rating agency Fitch, adding that this can “boost potential growth with multi-year public investment packages that raise productivity.”

According to the consultancy, the government seems all set to adopt this policy based on the conclusions of the economic survey, even at the risk of increasing public debt.

India Ratings and Research said that this “does not mean fiscal irresponsibility. Once growth picks up in a sustainable manner, fiscal consolidation can be pursued.”

India was already experiencing an economic slowdown before the coronavirus outbreak.

The country’s economy grew at 6.8 percent in the financial year 2018-2019, the lowest in five years, while unemployment stood at 6.1 percent in 2017-18, the highest in 45 years according to official data.

In this backdrop, the Indian government imposed a complete nationwide lockdown in March 2020 to prevent the rapid spread of the pandemic, leaving millions of migrant workers trapped in the major cities without any money.

The chief economist at India Ratings and Research, Devendra Pant, told EFE that the government should help people “at the lowest rung of the social pyramid” through direct bank transfers.

“Whatever they will get, most of it they will consume. And that way demand will come back in the economy,” he said.

Renowned economist Santosh Mehrotra agreed that the government has to “put money in people’s pockets,” although he remained skeptical about this outcome due to the economic packages announced in 2020 to control the economic impacts of the pandemic.

According to Mehrotra, despite being presented as an expenditure worth 10 percent of the GDP, “the total size of the fiscal stimuli announced between May and the September was no more than 2.2 percent.”

The economic survey suggested that India should increase public spending in the healthcare sector up to 3 percent of the GDP, compared to the current 1 percent.

The South Asian country is the second worst affected by the pandemic with over 10.7 million cases and nearly 150,000 deaths.

Authorities expect to vaccinate around 300 million people during the first half of the year.

Mehrotra said that taking into account the expenditure on vaccines and human resources, “India has no other choice than to spend more on health.” EFE-EPA


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