NEW DELHI – The world’s largest economies are trying to borrow and spend their way out of the pandemic, from the European Union’s $ 900 billion incentive package to President Biden’s proposed $ 1.9 billion bailout plan.
Then there is India.
The government, Prime Minister Narendra Modi, on Monday proposed a budget of almost a trillion dollars for the twelve months beginning on April 1, showing that New Delhi is taking a largely conservative action. Expenditure on infrastructure and healthcare will increase significantly, but Mr. Modi’s budget also calls for debt reduction.
Overall, spending will rise less than 1 percent at a time when India is suffering from the worst recession in years while the coronavirus is being fought. The Indian economy, once one of the world’s fastest growing countries, has shrunk by an estimated 8 percent in the current financial year, which will end on March 31.
“I do not know why the government is so dependent on being fiscally conservative when the whole world suggests that it is like no other time to be excessive,” said Mahesh Vyas, an economist and CEO of the Mumbai-based center for monitoring the Indian economy.
“I do not know any economist who proposes this policy,” he said.
The amount allocated to defense, for example, is only a fraction more than last year, even though Indian and Chinese troops appear along their largely undefined high mountain border.
“This was only to be expected, given the state of the Indian economy, but it will certainly affect the modernization of the army,” said Lt. Gen. DS Hooda, the former commander of India from the northern border with Pakistan and China, said.
In many ways, the budget reflects Mr. Modi’s difficult position. He remains very popular, and the country’s opposition parties could not seriously challenge him.
But the strict lockdown of Mr. Modi in March plunged the economy. His government says the move has saved countless lives, but it has also cost jobs. Many people are still out of work or earning less.
He faces thorny challenges in other areas. Farmers have been complaining for months at the capital’s borders that lawmakers need to repeal a trio of farm laws that Modi says are key to India’s reform.
The Indian economy faced well before the pandemic. Between April and December 2019, GDP grew by only 4.6 percent. Although more mature economies envy the rate, it is a slowdown of years when the country’s production increased by 7 to 8 percent.
The government can reduce spending and use the low interest rates to borrow to pay for it. It could still fuel inflation, a long-standing fear in a country where many households are affording basic staples. A rise in prices while a large part of the 1.3 billion inhabitants are already faltering on the edge, the popularity of mr. Modi’s Bharatiya Janata party harmed.
Arun Kumar, a professor of economics at the Institute of Social Sciences in New Delhi, said the government was also concerned about a credit downgrade by international rating agencies, which would make it more expensive for the government to borrow.
Modi is therefore eager to put the struggling economy of India in the best light possible. As coronavirus cases and deaths decline sharply from the last peak in September, government economists promise a dramatic recovery.
“India focused on saving lives and livelihoods, took short-term pains for long-term gains, and realized that GDP growth would slow but then recover, and it did,” said KV Subramanian, the government’s chief economic adviser , said.
The recovery is far from being assured. Even if the rosy forecast of 11 percent growth in 2022 is realized, India’s net growth will be just 3.5 percent – far less than is needed to employ the millions of young people entering the labor market each year. .
Nirmala Sitharaman, India’s finance minister, on Thursday defended the government’s relative austerity, saying the budget was just the latest in a series of public interventions aimed at supporting India’s most vulnerable, while also addressing the issue. of consumers and small and medium-sized enterprises promoting the country. a large part of the Indian economy on.
“We spent, we spent and we spent,” she said. Sitharaman told reporters on Thursday. “We have also shown a clear slide for deficit management and reduced it.”
India’s deficit target is one of the more ambitious budget targets. The fiscal deficit, which was 3.5 per cent before the pandemic hit India, rose to 9.5 per cent as the country scrambled to increase production of masks and other protective equipment, plus testing the coronavirus and cash outputs and expand food rations to about 800 million people. Me. Sitharaman aims to reduce the fiscal deficit to 6.5 percent.
Despite the lack of overall large spending, investors liked the budget a lot. It calls for increased spending on farmers – a priority given the protests on the outskirts of New Delhi in recent weeks – and greater privatization of state-owned enterprises. After the budget was presented, the main index of the Bombay rose by 5 per cent.
Some economists have remained skeptical. They pointed to studies such as one from Azim Premji University which found that of those who lost jobs between April and May, one in five is still unemployed.
Mr. Kumar, of the Institute of Social Sciences, said the government should be more concerned about the hit of the informal sector – the people who run shops, run rickshaws or otherwise do not appear on the corporate payroll. Due to a lack of data, their livelihoods may be much greater than realized.
“The key components of the economy are still down,” he said. Kumar said, adding that the informal parts of the economy are “significantly down.”