India embarks on a spending spree to boost economic growth

Asia’s third-largest economy is on the mend after the government lifted mobility measures in June to curb the spread of the coronavirus, after contracting 6.6% in the previous financial year.

Finance Minister Nirmala Sitharaman, presenting the annual budget to parliament, said total government spending for the 2022/23 financial year starting in April will be 4.6% higher than the current year.

Billions of rupees will be allocated to highways, affordable housing and solar manufacturing to put growth on a firmer footing, she said.

Growth is estimated at 9.2% for 2021/2022, coming off the low base and slowing to 8-8.5% in the coming fiscal year, still the fastest among major global economies.

(GRAPHIC – India’s economic growth under Modi’s tenure

Recovery from the pandemic has been quick but incomplete, officials say. Private consumption has been hampered by lack of jobs, depleted household balance sheets and worsening income inequality.

Sitharaman said public investment must continue to take the lead and pump up prime private investment and demand.

“The economy has shown strong resilience to emerge from the effects of the pandemic with strong growth. However, we need to maintain this level to compensate for the setback in 2020/21,” she said.

It announced spending of 200 billion rupees ($2.68 billion) on a highway expansion program and said 400 new trains would be manufactured over the next three years.

The budget deficit for the current year would be 6.9% of GDP, slightly higher than the previously targeted 6.8%, Sitharaman said, sparking concern in the bond market.

(GRAPH – India’s budget deficit hit record highs in 2020-21

For the next fiscal year, India is targeting a deficit of 6.4% of GDP, hoping to build on higher tax revenues and the privatization of state-owned companies, including a sale of shares in insurer giant Life Insurance Corporation.

“It’s a big budget, but it depends on where you are on the perimeter of the bong. The massive increase in capital spending and the focus on infrastructure reinforce the budget’s credentials as a strong growth-oriented budget,” said Aurodeep Nandi, Indian Economist and Vice Chairman of Nomura.

The yield on the benchmark 10-year bond jumped 22 basis points to 6.87% from its pre-budget level, reaching levels last seen in early July 2019, while the rupee weakened at 74.8650 to the dollar versus 74.55.

Gross borrowing for 2022/23 has been increased by 40% to Rs 14.95 trillion. Gross borrowing by Prime Minister Narendra Modi’s government more than doubled during the pandemic as New Delhi embarked on a spending spree to cushion the economy and help the poor.

(GRAPH – Indian government borrowing has more than doubled over 5 years

“The sharp rise in bond yields after the budget announcement reflects the surprise of bond markets, which will now have to absorb this large borrowing,” Nandi said.

The blue-chip NSE Nifty 50 stock index gave up some early gains to trade up 0.76% at 17,472.35 at 08:09 GMT, while the S&P BSE Sensex rose 0.88% to 58 522.42.


The government has sharply scaled back its plans to privatize state-owned enterprises after political criticism and market turmoil, expecting to raise 650 billion rupees through the privatization program next fiscal year, less than the revised target of 780 billion for the current fiscal year.

Initially, it announced that it would raise 1.75 trillion rupees in this fiscal year. After years of trying, the government managed to sell loss-making carrier Air India last month, but failed to move ahead with other companies and banks identified for sale.

It is now betting on the IPO of insurance giant Life Insurance Corporation, expected in the coming weeks, to generate revenue and relaunch the privatization program.


Sitharaman also said the central bank will introduce a digital currency in the next fiscal year using blockchain and other supporting technologies.

“The introduction of a central bank digital currency will give a big boost to the digital economy. A digital currency will also lead to a more efficient and cheaper currency management system,” Sitharaman said.

India’s central bank has expressed “serious concerns” about private cryptocurrencies on the grounds that they could cause financial instability.

($1 = 74.5550 Indian rupees)

(Additional reporting from Delhi, Mumbai and Bangalore offices; writing by Sanjeev Miglani; editing by Jacqueline Wong and Raju Gopalakrishnan)

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