Focus on healthcare, infrastructure and defense to widen India’s budget deficit to 5.6% of GDP in FY21, says GlobalData

The Union Budget of India 2021-22 is expected to focus more on driving the economic recovery through higher spending on healthcare, infrastructure, and defense amid the rising tensions with neighbors. This is expected to widen the budget deficit to 5.6% of GDP in FY21, says GlobalData, a leading data and analytics company.

The need of the hour is to increase credit flows, especially to small and medium enterprises sector, as well as investment in education and health sectors to boost production and consumption. Infrastructure development is expected to be the top priority in the budget to revive other economic sectors and bring in more FDI into the country. The government may reduce GST and come out with an incentive based scrappage policy to encourage automobiles sales in 2021 in its annual budget.

Gargi Rao, Economic Research Analyst at GlobalData, says: “The focus of the budget 2021-22 will be to strengthen healthcare facilities and primary healthcare centers under Ayushman Bharat Yojana and provide impetus for self-reliance in health sector.”

Since March 2020, the government spent around 10% of its GDP on stimulus packages to tackle COVID-19 which is forecasted to shoot up in 2021.

Ms Rao continues: “Given the government’s aim to be a major exporter of defense items along with mounting border tensions with its neighboring countries including China, the defense budget may witness higher allocation.”

To increase household savings and consumption, the budget may provide tax breaks to middle-class and extend new income tax rate slabs to individuals earning more than INR1.5m per annum. Import duties may shoot up to protect domestic industries and give a boost to ‘Make in India’ initiatives.

Ms Rao concludes: “The expectations from the upcoming budget are mainly inclined towards infrastructure development, tax concessions for elderly to provide a breather for consumers to increase their overall consumption, along with increasing domestic production. Despite increase in fiscal deficit for two consecutive years, the government needs to spend more to revive the economy from the COVID-19 economic crisis. With rising demand for goods and services and revival of key economic sectors amid the declining rates of COVID-19 cases, GlobalData forecasts India’s GDP growth rate to witness a V-shaped recovery with 9.72% growth in 2021.”

More Media