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NEW DELHI - India proposed doubling healthcare spending in an annual budget unveiled on Monday and lifted caps on foreigners investing in its vast insurance market to help revive an economy that suffered its deepest recorded slump as a result of the pandemic.

Delivering her budget statement to parliament, Finance Minister Nirmala Sitharaman projected a fiscal deficit of 6.8% of gross domestic product for 2021/22, higher than the 5.5% forecast by a recent Reuters poll of economists. The current year was expected to end with a deficit of 9.5%, she said, well up from the 7% expected earlier.

India, which has the world's second highest coronavirus caseload after the United States, currently spends about 1% of GDP on health, among the lowest for any major economy.

Sitharaman proposed increasing healthcare spending to 2.2 trillion Indian rupees ($30.20 billion) to help improve public health systems as well as the huge vaccination drive to immunise 1.3 billion people.

"The investment on health infrastructure in this budget has increased substantially," she said as lawmakers thumped their desks in approval.

Millions of people lost their jobs when the government ordered a lockdown last year to combat the coronavirus. The government estimates the economy will contract 7.7% in the current fiscal year ending in March but then recover to show 11% growth in 2021/2022,

That would make it the world's fastest growing major economy ahead of China's projected 8.1% growth, but the government said it would take the economy two years to reach pre-pandemic levels.

"In a time of unprecedented economic stress, the government's responsibility was to spend enough to revive the economy or else face enormous human suffering," said Anand Mahindra, chairman of Mahindra group, an autos to technology conglomerate.

"So I had one expectation from this budget: that we should be very liberal in terms of the targeted fiscal deficit. Box ticked."

Indian stock markets extended gains after Sitharaman concluded her speech and market players said they were relieved she had not announced any tax hikes.

The NSE Nifty 50 index was up 3.35% by 0730 GMT, while the S&P BSE Sensex climbed 3.57%.

The Nifty was on course to make its best one-day gain since April 2020.

Sitharaman said the foreign direct investment (FDI) cap for the insurance sector would be increased to 74% from the current 49%.

She also allocated 200 billion rupees ($2.74 billion) to recapitalise state-run banks that are saddled with bad loans and have been a drag on growth.

India's benchmark 10-year bond yield rose sharply to 6.03% from the day's low of 5.93% on the fiscal projections.

"The indications are that the government is going to do more to promote growth rather than maintaining fiscal discipline," said Sujan Hajra, chief economist at Anand Rathi Securities in Mumbai.

"This is a welcome move as it will have a positive impact on growth. Also, we are seeing a lot of measures on conditions of doing business which was required. The intent for reforms is also strong."

To bridge some of the deficit, the government plans to raise 1.75 trillion Indian rupees from selling its stake in the state run companies and banks including IDBI bank, an insurance company and oil companies.

The pandemic ruined the divestment plans for the current fiscal with only 180 billion rupees raised so far from the sales. Stake sales and privatisation have seldom met targets in India, due partly to resistance from unions and political opposition.

Gene Fang, associate managing director, sovereign risk group, Moody's Investors Service, said the budget announcements did not change the credit rating agency's stance on India. Moody's rates Indian sovereign debt at "Baa3" - the bottom rung of investment grade ratings - with a "negative" outlook.