Posted by: John Elliott | February 1, 2021

India’s Budget pitched as “dawn of a new era”

Ambitious plans for widespread public sector privatisation

Farmers’ protests grow again after Republic Day tractor rallies

India’s annual Budget has today attempted to re-boot the country’s Covid-hit economy with plans that double spending on healthcare, sell-off most government owned businesses, raise foreign direct investment limits in the country’s large insurance market, and accelerate infrastructure development.

Beset with continuing mass protests by tens of thousands of farmers on highways entering Delhi that challenge its authority, the Narendra Modi government is using the Budget speech to try to recover the initiative and launch what Nirmala Sitharaman, the finance minister, called the post-Covid “dawn of a new era”.  India, she declared, was  “well poised to truly be a land of promise and hope”.

Sceptics will say that India has for decades been described as being poised for greatness but that hopes are rarely realised. While the plans for a boost in government spending may be achieved, attracting foreign investment will be a challenge and the plans for privatising the public sector will arouse extensive trade union opposition and take years to fulfil.

Private sector companies, which have been loth to invest, would have liked more stimulus. Critics said the measures would have a slow impact and that more immediate policies should have been introduced to help the poor and stimulate demand.

The Narendra Modi government has not been good at delivering economic growth, which had declined to an 11-year low of 4.5-5% even before the pandemic hit. Modi then devastated activity with millions of job losses when he introduced a sudden lock-down last March, triggering what is expected to become a 7.7% contraction in the economy for 2020-21.

The annual Economic Survey published on January 29 forecasts an ambitious 11% GDP growth for the coming financial year (2021-22) with a ‘V’ shaped recovery, but adds that it will take at least two years for the economy to return to pre-pandemic levels. These figures are in line with other forecasts including the International Monetary Fund (IMF), which last week put this year’s contraction at 8% with 11.5% growth in the coming year, falling back to an optimistic 6.8% in 2022-23 when India would have regained its position as the world’s fastest-growing large economy, beating China.

Privatisation policy

The Budget’s plans for widespread privatisation are the most ambitious for more than a decade since the last BJP government. They involve selling a controlling interest in government-owned companies, expanding on proposals launched last May in one of 2020’s five mini-Budgets. Sitharaman said today that the government proposes privatising two public sector banks and an insurance company in 2021-22, as well as the IDBI development bank that is already under way.

Finance Minister Nirmala Sitharaman carrying her Budget bag

Beyond that, details contained in an annexure to today’s speech say that the government will only have a “bare minim presence” in four sectors:  atomic energy, space and defence; transport and telecommunications; power, petroleum coal and minerals; and banking, insurance and financial services. Last May’s announcement suggested that there would be investments in one to four enterprises in each of these areas. In other areas, says today’s annexure, government owned businesses “will be privatised, otherwise shall be closed”. 

There have been no full privatisations – where the government sells a controlling stake – for many years, though several are now being attempted including Air India, the state owned container and shipping corporations, Bharat Petroleum (BPCL), Bharat Earth Movers  (BEML) and the IDBI. Financial stakes have been sold for many years in various government corporations – known as disinvestment, with the government retaining control. 

Sitharaman said the foreign direct investment (FDI) cap for the insurance sector would be increased to 74% from the current 49%. She allocated Rs200bn rupees ($2.74 bn) to recapitalise state-run banks that are saddled with bad loans and have been a drag on growth. A new financial institution will be set up to fund infrastructure projects along with a long-debated asset reconstruction company to take over banks’ bad loans.

The challenge for Sitharaman has been to balance the government’s escalating debt burden while stimulating the economy. The finance minister said that the current year is expected to end next month with a fiscal deficit of 9.5% compared with 7% that had been forecast earlier. The forecast for 2021/22 is 6.8%, which is higher than had been expected.

The government’s main focus is to overcome the effects of the pandemic that has led to a total of over 10.75m cases (168,235 currently active) among the 1.4bn population. This is the second biggest caseload internationally after the US. There have been over 150,000 deaths.

The Budget plans to boost healthcare spending to Rs2.2 trillion ($30.20 bn) – including Covid vaccinations – to start improving the seriously inadequate public health system. India has been spending about 1% of GDP on health, which is among the lowest for any major economy.

The survey is basing its hopes on a successful roll-out of anti-Covid vaccines, which have so far been given to some 3m front-line healthcare workers using the AstraZeneca- Oxford version, along with Covaxin, developed in India by Bharat Biotech of Hyderabad and the Indian Council of Medical Research (Delhi) that has yet to clear phase three trials


The Budget contained several measures to help farmers, though they will be hit by a cess on petrol and diesel. The Economic Survey strongly defended the government’s new farm laws, which have led to more than two months of large-scale protests by farmers from the Sikh-dominated Punjab, Haryana and elsewhere on the highways into Delhi. The survey claimed that the laws, currently suspended by the Supreme Court, would “herald a new era of market freedom which can go a long way in the improvement of farmer welfare”, but farmers fear it will lead to market domination by large corporations and the ending of government minimum price guarantees. 

On Republic Day (January 26), the farmers staged mass tractor rallies into Delhi that led to violence and the invasion of the Red Fort. According to widespread reports, the violence was at least partly triggered by government loyalists planted in the crowds, which opened the way for the police to attempt to close down the protests on the highways. 

Since then, the police have tried to impose their authority, heavily barricading highways. The groups have however reassembled and the determination of their leaders appears strong, despite numerous court cases started after the January 26 violence.

The government now has to face the fact that, aside from the Budget, its most immediate “new era” tasks are to find an agreed solution for  the farmers’ protests and to pursue a mass Covid vaccination campaign. Of the two, the vaccinations look the easiest, despite widespread concern about their efficacy.

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