• India's finance minister announced the budget for the upcoming fiscal year where the government's focus will be on capital expenditure as well as spending on health-care and infrastructure.
• Economists noted a shift in India's focus from survival to revival in an environment where the economy is in technical recession and is expected to shrink 7.7% for the current year.
• India's chief economic advisor Krishnamurthy Subramanian told CNBC that Monday's budget measures can potentially lift the country's growth to more than 8% in a couple of years.

SINGAPORE — India's budget for the fiscal year that begins April 1 has the potential to lift growth above 8% in the next couple of years, according to Krishnamurthy Subramanian, the country's chief economic advisor.

Finance Minister Nirmala Sitharaman on Monday announced a budget that emphasized capital expenditure and focused on health-care and infrastructure spending as well as some financial sector reforms.

The budget has given a "significant push" to India's V-shaped economic recovery, Subramanian told CNBC's "Street Signs Asia" on Tuesday.

The moves announced "have the potential to push India into an 8%+ growth orbit in a couple of years," he said. India's planned infrastructure spending for the upcoming fiscal year can further add to the recovery, while the proposal to more than double health-care expenditures is a "signature moment" in the country's history, according to Subramanian.

Those measures are expected to "put the foundation for India to grow at really high rate, 8%+ in this decade," Subramanian said.

From survival to revival

A shift in focus from revenue expenditure growth in the current fiscal year to capital expenditure growth for the next signals the country's pivot from a "survival" strategy to a "revival" strategy, according to economists from Citi.

"The budget has refrained from an explicit immediate demand side stimulus with the hope that the supply side spending on (infrastructure) would generate demand side impulses," the economists wrote in a Monday note.

India's proposed capital expenditure in the budget is up 34.5% from a year ago to 5.54 trillion rupees (about $80 billion).

Monday's budget was announced against a backdrop where South Asia's largest economy is expected to shrink 7.7% in the current fiscal year. Last year, India slipped into a technical recession due to the economic fallout from a lengthy lockdown to slow the spread of the coronavirus outbreak.

Transparent budget math

Economists agreed that the budget addressed long pending issues of transparency by bringing down the government's off balance sheet spending — those are large expenditures that are usually not accounted for in the budget. The government's fiscal and growth targets also appeared realistic and achievable, they said.

"Although this might optically push up the reported fiscal deficit number, a very credible set of assumptions on revenue and expenditure side should reduce the fear of fiscal slippage during the year," the Citi economists said. "In fact, the budget math appears to be consciously under-promising, leaving the scope for delivering more."

Finance Minister Sitharaman said the government's deficit target for the next fiscal year would be around 6.8% of GDP, which is lower than the 9.5% pegged for the current year that ends on March 31.

Rini Sen and Sanjay Mathur from ANZ Research said the fiscal arithmetic and macroeconomic assumptions that underpin Monday's budget are realistic, which minimizes the risk of the government slipping away from target. As such, the budget appears "far more achievable than in the past," they said.

Some doubts remain

Though economists generally agreed that the budget focused on ways to revive India's growth, some said it may not be enough.

The budget lacked the "audacity of spending required for immediate impact" to help an economy struggling due to a lack of demand and poor employment opportunities, especially in the informal sector, according to Kunal Kundu, India economist at Societe Generale.

He explained in a note that the public capital expenditure set aside for roads and railways is less than 1% of the nominal GDP projection for the next fiscal year. "For most of the other measures announced, the actual level of public expenditure will be contingent on multiple factors, including how some public-private partnerships develop," as well as if and how privatization happens, Kundu said.

He added that the 200 billion rupees earmarked for public sector bank recapitalization may not be enough in an environment where many lenders are expected to face asset-quality issues — as a result, bank credit growth may take a hit just as the economy recovers.

Still, the policies announced can spur gradual growth over the medium term if implemented properly, according to Kundu.

Media reports said that ratings agency Moody's also expressed doubts over India's ability to attain higher revenue and divestment targets assumed in the budget.