NEW DELHI – The world’s largest economies are trying to borrow money and get out of the pandemic, from the European Union’s $ 900 billion stimulus package to President Biden’s proposed $ 1.9 trillion bailout.
Then there is India.
Prime Minister Narendra Modi’s government on Monday proposed a budget of nearly half a trillion dollars for the 12 months beginning April 1, showing that New Delhi is on a largely conservative course. Expenditure on infrastructure and health care will increase significantly, but Mr Modi’s budget also calls for debt reduction.
All in all, spending would increase by less than 1 percent at a time when India is suffering its worst recession in years in the fight against the coronavirus. The Indian economy, once one of the fastest growing in the world, is estimated to have contracted by nearly 8 percent in the current fiscal year, which will end on March 31.
“I don’t know why the government is so insistent on being fiscally conservative, when the whole world is suggesting that this is the time, like no other, to be dissolute,” said Mahesh Vyas, an economist and the chief executive of the Center for Liquor monitoring of the Indian economy in Mumbai.
“I don’t know of any economist who is suggesting this policy,” he said.
The amount allocated to defense, for example, is only a fraction more than last year, even as Indian and Chinese troops take it up along their largely undefined high mountain border.
“This was only to be expected given the state of the Indian economy, but will certainly affect the modernization of the military,” said Lt General DS Hooda, India’s former commander of the area’s northern border with Pakistan and China.
In many ways, the budget reflects Mr Modi’s difficult position. He remains hugely popular and the country’s opposition parties have not been able to seriously challenge him.
But Mr Modi’s severe lockdown in March cratered 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 are earning less.
He faces tricky challenges on other fronts. For months, farmers on the borders of the capital have been calling on lawmakers to repeal three agricultural laws that Mr Modi said are key to India’s market reforms.
Well before the pandemic, the Indian economy faced headwinds. GDP grew by only 4.6 percent between April and December 2019. While more mature economies could be jealous of that rate, it marks a slowdown since years in which the country’s production grew 7 to 8 percent.
The government could drive up spending by taking advantage of the low global interest rates to borrow to pay for it. Still, that could lead to inflation, a lingering fear in a country where many households are struggling to afford basic commodities. A rise in prices while much of the 1.3 billion residents are already teetering on the brink could erode the popularity of Mr Modi’s Bharatiya Janata party.
Arun Kumar, a professor of economics at the Institute of Social Sciences in New Delhi, said the government was also concerned about a credit cut by international rating agencies that would make it more expensive for the government to borrow.
Therefore, Mr Modi wants to put India’s struggling economy in the best possible light. With coronavirus cases and deaths falling sharply since its last peak in September, government economists are promising a dramatic recovery.
“India focused on saving lives and livelihoods, taking short-term pain for long-term profit, acknowledging that GDP growth would decline but recover thereafter,” said chief economic adviser to GDP. the government, KV Subramanian.
That recovery is far from assured. Even if the government’s rosy forecast of 11 percent growth by 2022 is realized, India’s net growth would be only 3.5 percent – far less than what it takes to employ the millions of young people who enter the labor market each year .
Nirmala Sitharaman, India’s finance minister, defended the government’s relative austerity on Thursday, saying the budget was only the latest in a series of public interventions designed to support India’s most vulnerable, while also reducing consumer demand and small and medium-sized businesses. much of the Indian economy.
“We’ve spent, we’ve spent, and we’ve spent,” Ms. Sitharaman told reporters on Thursday. “We have also shown a clear glide path for deficit management and mitigation.”
India’s deficit target is one of the budget’s more ambitious targets. The budget deficit, which was 3.5 percent before the pandemic hit India, has risen to 9.5 percent as the country rushed to ramp up production of masks and other protective gear, plus coronavirus testing and expanding money spending and food rations to about 800 million people. Mrs. Sitharaman aims to reduce the budget deficit to 6.5 percent.
Despite the lack of overall big spending, investors liked the budget a lot. It calls for more spending on farmers – a priority given the protests in the outskirts of New Delhi in recent weeks – and more privatization of state-owned companies. After the budget was presented, the Bombay Stock Exchange’s main index rose 5 percent.
Some economists remained skeptical. They pointed to studies like the one at Azim Premji University that found that of those who lost their jobs between April and May, one in five is still out of work.
Mr. Kumar, of the Institute of Social Sciences, said the government should be more concerned about the blow to the informal sector – the people who run shops, run rickshaws, or otherwise don’t appear on corporate payrolls. Due to a lack of data, the hit to their livelihood could be much greater than realized.
“The major parts of the economy are still lagging behind,” said Mr Kumar, adding that the informal parts of the economy are “declining significantly.”