India to invest $1.46 trillion to support virus-hit economy
Narendra Modi unfurls the tricolour during a ceremony to celebrate Inda's 74th Independence Day at the Red Fort in New Delhi on Saturday. AFP
India’s prime minister said on Saturday his country has done well in containing the coronavirus pandemic and announced $1.46 trillion in infrastructure projects to boost the sagging economy.
The key lesson India learned from the pandemic is to become self-reliant in manufacturing and developing itself as a key supply chain destination for international companies, Prime Minister Narendra Modi said.
“The coronavirus epidemic is a big crisis, but it can’t stall India’s economic progress,’’ Modi said in a speech from New Delhi’s 17th century Mughal-era Red Fort to mark the 73rd anniversary of India’s independence from British rule. He wore an orange and white turban with a long scarf around his neck.
He also said that three vaccines are in different phases of testing in India and mass production will begin as soon as scientists give the green light. Modi said that “detailed plans are in place for large-scale production” of a vaccine that will be made “available to every Indian.”
India has confirmed more than 2.5 million virus cases, third behind the US and Brazil. Its death toll of over 49,000 is fourth in the world.
Modi also announced a national digital heath plan under which every Indian will get an identity card containing all health-related information.
The celebrations were curtailed on Saturday because of the pandemic, with invitations going only to 4,000 guests instead of the usual 20,000, media reports said. The International Monetary Fund projected a contraction of 4.5% for the Indian economy in 2020, a “historic low,” but said the country is expected to bounce back in 2021.
Modi said the government has identified 7,000 infrastructure projects to offset the economic impact of the pandemic.
“Infrastructure will not be created in silos anymore. All infrastructure has to be comprehensive, integrated and linked to each other. Multi-modal connectivity infrastructure is the way forward,” he said.
He said that India saw a record 18% jump in foreign direct investment in the past year, a sign that international companies are looking at the country.
Modi didn’t refer to China directly, but India is trying to capitalize on its rival’s rising production costs and deteriorating ties with the United States and European nations to become a replacement home for large multinationals.
India’s federal fiscal deficit touched a record $88.5 billion in the April-June quarter, 83.2% of the target for the whole of the current fiscal year, reflecting the impact of the coronavirus pandemic on tax collections and as the government front-loaded its spending.
The deficit is predicted by private economists to cross 7.5% of GDP in the 2020/21 fiscal year beginning April, from initial government estimates of 3.5%, due to a sharp economic contraction caused by the COVID-19 outbreak.
The economy is forecast to shrink 5.1% in the current fiscal year, and 9.1% under a worst-case scenario, according to analysts in a Reuters poll, its weakest performance since 1979.
Government data released recently showed total net federal tax receipts in three months through June declined more than 46% year-on-year to 1.35 trillion rupees ($18.05 billion), compared with 2.51 trillion rupees a year ago, even though taxes on fuel products have been increased.
Over three months, total expenditure rose 13% year-on-year to 8.16 trillion rupees, compared with 7.22 trillion rupees a year ago, as the government increased spending on free foodgrains and rural jobs programmes for millions of migrant workers.
Economists said a more than two months-long lockdown since late March has hurt economic activity in Asia’s third largest economy, impacting tax collections and the government’s plans to raise revenue through privatisations of state-run companies.
India’s retail inflation edged up slightly in July due to higher food prices, remaining firmly above the RBI’s medium-term target of 4% for a 10th straight month, a Reuters poll showed.
Food prices, which account for nearly half the inflation basket, have soared since April due to supply-side disruptions caused by a nationwide lockdown imposed to contain the spread of the coronavirus which has infected more than 2 million people and killed over 44,000 in the world’s second-most populous country.
While the central government gradually eased restrictions in June, regional lockdowns in some major agricultural producing states continued to disrupt supplies of essential perishables like fruits and vegetables. The August 6-10 Reuters poll of over 45 economists showed Indian retail inflation rose to 6.15% last month from 6.09% in June.
“We see July CPI inflation to be steady above the Reserve Bank of India’s 6% policy limit. Food remained a dominant inflation driver but high utility and transport costs also contributed,” said Prakash Sakpal, Asia economist at ING.
The government suspended the release of CPI inflation headline numbers for April and May due to insufficient data during the lockdown.
The RBI kept interest rates on hold last week after reducing the repo rate by a total of 115 basis points since February - despite a recent rise in retail consumer prices - but said it would ensure inflation remains within target.
Agencies
