Govt. on track to reduce fiscal deficit: Fitch


Fitch Ratings on Friday exuded confidence that the Government of India should be able to achieve its enhanced goal of reducing the fiscal deficit to 4.9% of GDP this year, and further below 4.5% of GDP next year, but noted that the post-election Budget did not provide much clarity on medium-term targets.

While the Budget did highlight “a desire to manage deficits to keep debt on a declining path”, Fitch Ratings reckoned that the long-term deficit target of 3% of GDP under the 2003 Fiscal Responsibility and Budget Management (FRBM) Act “no longer appears to be a guiding objective”.

“Public finance metrics in general remain a weakness in India’s credit profile; its fiscal deficit, interest-to-revenue and debt ratios are still high compared with ‘BBB’ category peers. 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, particularly when combined with the current positive momentum on macroeconomic performance and external finances,” the rating agency said.

Several Budget proposals could be positive for manufacturing investments and the public capex should bolster transport infrastructure, but land and labour regulations remain significant constraints, it noted.

“The budget highlighted that these will stay largely under state government purview, though the central government will incentivise reforms. This is broadly in line with our earlier expectations, as advancing such reforms is usually difficult, especially at the national level, and has likely become more politically challenging following the return to coalition government,” the rating major observed.

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