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Informist, Tuesday, Sep 10, 2024

 

NEW DELHI – India has improved its fiscal credibility by outperforming its budgeted deficit targets in the last few years, Fitch Ratings said in a report today. The rating agency last month affirmed India's sovereign rating at 'BBB-' with a stable outlook.

 

"Its (government's) use of a recent central bank dividend to lower its deficit target for the fiscal year ending March 2025 reinforces our view that it prefers fiscal consolidation over additional spending," Fitch said. The Union Budget presented in July lowered the fiscal deficit target for 2024-25 (Apr-Mar) to 4.9% of GDP from 5.1% in the Interim Budget. The fiscal deficit in 2023-24 was 20 basis points lower than the revised estimate at 5.8% of GDP.

 

Despite performing better on fiscal deficit targets in recent years, India's deficit, and interest-to-revenue and debt ratios remain high compared with the 'BBB'-rated countries, the rating agency said. 

 

"India has faced few challenges financing its large deficits, but we believe its government remains committed to reducing the budget deficit over the medium term, even amid the demands that governing in coalition will impose on the newly elected administration – and despite the government's sustained focus on supporting economic growth through higher public capital expenditure," Fitch said.

 

While the government has focussed on fiscal consolidation in the recent past, India's historical record of fiscal rule implementation is weak, the rating agency said. The government has only once met the deficit ceiling of below 3% of GDP set by the Fiscal Responsibility and Budget Management Act, 2003, in 2007-08. "The 3?ficit and 60?bt targets under the FRBM no longer appear to be medium-term fiscal anchors," it said.

 

Instead, the government has now said that it will shift its medium-term focus on lowering debt. Informist last month reported, citing senior finance ministry officials, that the government will focus its fiscal consolidation strategy on bringing down its interest burden in coming years, even though the current level of interest expenses does not pose an immediate threat to debt sustainability.

 

Fitch expects India's public debt to fall to 81.6% of GDP in 2024-25 from an estimated 82.4% in 2023-24 and reach just under 78% of GDP by 2028-29, assuming a trend nominal growth of 10.5%. "Shocks that challenge the fiscal consolidation trend we expect under our baseline could put downward pressure on the ratings," the rating agency said.  End

 

Reported by Shubham Rana

Edited by Tanima Banerjee

 

 

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