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Economy on rebound, govt focuses on spending: Finance minister
Nirmala Sitharaman | Photo Credit: Reuters

India's economy will return to growth in 2021/22 after a sharp contraction in the latest year, and higher public spending will lay the foundation for stronger growth in the next four to five years, Finance Minister Nirmala Sitharaman told Reuters on Thursday.

With the world's second highest number of coronavirus cases despite a severe lockdown of its 1.3 billion people early in the pandemic, India's economy is expected to contract nearly 10% in the 2020/21 financial year.

But a recovery is taking hold now, Sitharaman told the Reuters Global Investment Outlook Summit, 2021.

"I would think 2021-22 will be very big, good traction year for achieving a really good rate of growth that itself is going to be a launching pad for 4-5 years of growing at a good speed, provided we do enough on the budget and spend on infrastructure," she said. She gave no numbers about how big a government spending increase she planned to propose.

Because the Indian government was concerned about its budget deficit, its stimulus to fight the economic slump during the pandemic was more modest than those of other countries such as the United States, Japan and the United Kingdom.

Sitharaman suggested the government should spend more in the months ahead to boost the growth rate.

"I have to be conscious that if I don't spend now, then the stimulus is meaningless, if I don't spend now the revival is going to get deferred and we can't afford that."

The pace of the recovery would, however, depend on development and adequate supply of coronavirus vaccines, economists say.

India does not yet have a vaccine purchase contract with any company but has said it will rely mainly on five being tested in the country, including the Oxford-AstraZeneca one and Russia's Sputnik V.

Sitharaman said the government was bulking up the logistics including sufficient cold storage facilities to ensure delivery of the vaccine down to the village councils across the country.

"We seem to be getting a picture that there is a good possibility, months is what the health minister has been saying that we will need only a few months to wait for a vaccine," she said.

The government has not yet finalised how much funds would be required for the vaccination as it would depend on development costs and how many dosages are required, she said.

Prime Minister Narendra Modi's government hopes for deeper ties with the incoming administration of U.S. President-elect Joe Biden. It has long wooed the United States for investment, trade and technology, but for the past four years Washington has stepped up the pressure on India to open up its markets more under President Donald Trump.

Sitharaman said the two economies had a lot to gain from each other and defended he role of India's outsourcing and IT industry.

"They cannot be seen as they are taking away jobs from the U.S. On the contrary they contribute to the U.S. economy just as they of course add to the Indian services industry," she said.

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