Budget 2021: RBI is expecting a sharp rise in bad loans in the banking system due to COVID-19
The country’s ruling party has promised ‘game-changer’ plans to boost economic growth when Finance Minister Nirmala Sitharaman presents the 2021/2022 federal budget on February 1. Here’s a look at some top topics she is likely to cover on Monday, as Prime Minister Narendra Modi’s government tries to bring the country’s economy back on track. (Also Read: Healthcare Spending Must Increase To 2.5-3% Of GDP: Eco Survey )
Healthcare Spending
India is likely to double healthcare spending in the next fiscal year with the aim of raising expenditure in the sector to 4 per cent of gross domestic output in the coming four years, as the country looks to fix shortcomings exposed by the pandemic.
The government could also increase a health tax from the current 1% of income and corporate tax to fund the new programme.
Privatisation Drive
India is likely to aim to raise $40 billion from privatisation of a whole host of companies in energy, mining and banking, and selling minority stake of large companies such as Life Insurance Corp.
Bad Bank
The central bank is expecting a sharp rise in bad loans in the banking system due to the pandemic.
Aiming to boost lending in the economy and improve the valuation of state-run banks before selling stakes in them, the government could finally announce the creation of a “bad bank”, where bad assets of state-run banks could be parked and later sold at a discounted price in the market.
Development Financial Institution
India has set itself an ambitious target of building infrastructure worth 1.02 trillion in the country. However, funding these infrastructure projects may be a challenge given the revenue constraints and strained banks’ loan books. Sitharaman is likely to announce a dedicated development financial institution to facilitate financing greenfield infrastructure projects.
Import Duty
India is considering hiking import duties by 5 per cent-10 per cent on more than 50 items including smartphones, electronic components and appliances. The move to increase import duties is part of Modi’s “self-reliant India” campaign that aims to promote and support domestic manufacturing.
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