Informist, Friday, Jul 26, 2024

--Fitch: Sustained fisc consolidation to aid India's rtg upgrade
--Fitch: Sustained fisc consolidation to aid India's credit profile
--Fitch:Public fin metrics remain weakness in India's credit profile
--Fitch:India's long-term fisc gap target of 3% no longer guiding aim
--Fitch: India Budget shows desire to keep debt on declining path
--Fitch: India Budget didn't give much clarity on medium-term aims
--Fitch: India fisc credibility improved on outperforming budget aims
--Fitch: India should be able to cut fisc gap below 4.5% of GDP FY26
--Fitch:India fisc gap aim achievable on modest FY25 nominal GDP view
--Fitch: India's high govt capex points to continuity in key areas
--Fitch: India focussed on cutting fisc gap despite coalition govt
--Fitch: Budget shows India committed to cut fisc gap FY25, FY26

NEW DELHI – The full Budget for 2024-25 (Apr-Mar) confirms that the Indian government is focused on bringing down the fiscal deficit despite demands from alliance partners, Fitch Ratings said today. In the Budget on Tuesday, Finance Minister Nirmala Sitharaman cut the fiscal deficit target for this year to 4.9% of GDP from 5.1% of GDP pegged in the Interim Budget.

Key alliance partners of Prime Minister Narendra Modi – the Janata Dal (United) and the Telugu Desam Party – demanded special status for Bihar and Andhra Pradesh. "India's post-election budget confirms that the new administration remains committed to reducing the fiscal deficit this and next year, despite the demands of coalition government," Fitch said.

While the government has not granted special status to these states, it announced generous allocations for Bihar and Andhra Pradesh in the Budget. Sitharaman announced a 150-bln-rupee special financial assistance — to be raised from multilateral agencies — for Andhra Pradesh to develop a new state capital. The government will provide financial support to Bihar through several infrastructure-related projects.

The sustained focus on supporting economic growth through high public capital expenditure suggests policy continuity in India, Fitch said. The Budget has estimated capital expenditure at 11.11 trln rupees in the current financial year.

Fitch said the fiscal deficit target of 4.9% of GDP should be achievable considering the modest nominal GDP growth assumption of 10.5% for the year. "We think the government should also be able to achieve its goal of reducing the deficit below 4.5% of GDP in FY26 (2025-26)."

Though the Fiscal Responsibility and Budget Management Act mandates the government to bring the deficit level to 3% of GDP, the government has set an aim to reduce the deficit to below 4.5% of GDP by 2025-26 after it shot up to 9.2% of GDP due to the COVID-19 pandemic.

"The budget did not provide much clarity on medium-term targets, but did highlight a desire to manage deficits to keep debt on a declining path," Fitch said. "The long-term deficit target of 3% of GDP under the 2003 Fiscal Responsibility and Budget Management Act no longer appears to be a guiding objective."

In her Budget speech, Sitharaman said from 2026-27 the government's endeavour will be to keep the fiscal deficit each year such that the central government debt will be on a declining path as a percentage of GDP.

The government's record in recent years of outperforming on its budget deficit targets has improved India's fiscal credibility, Fitch said. Last year, the government reduced its fiscal deficit to 5.6% of GDP against the initial estimate of 5.9% of GDP.

But public finance metrics in general remain a weakness in India’s credit profile, Fitch said. "The fiscal deficit, interest-to-revenue and debt ratios are still high compared with ‘BBB’ category peers."

India's fiscal metrics, especially the debt-to-GDP ratio, are seen as a key impediment to its rating upgrade. The general government debt-to-GDP ratio is currently close to 80%, higher than similarly rated peers, Fitch said.

"Sustained fiscal consolidation that supports a downward trajectory in the government debt ratio over the medium term would support India’s credit profile and could ultimately contribute to upgrade potential for the rating," Fitch said. End

Reported by Krity Ambey

Edited by Saji George Titus

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