NewDelhi: Fitch Ratings on Friday said high debt burden of the government constrains India’s rating upgrade, a day after Finance Minister Arun Jaitley projecting a fiscal deficit of 3.5 percent of GDP against the earlier target of 3.2 percent.
The 2018-19 Union Budget unveiled yesterday contains a number of policy measures with the potential to support economic demand and social well being.
These include those leading to rise in agricultural income and the ambitious health insurance plan while setting up new medical colleges.
“If implemented well, spending on such measures would likely reach a large part of the electorate, which is not insignificant with general elections coming up,” Fitch Ratings Director and Primary Sovereign analyst for India Thomas Rookmaaker said.
He said weak public finances “constrain India’s sovereign ratings, given a high general government debt burden of around 68 percent of GDP and a wide fiscal balance of 6.5 percent of GDP if states are included.
The Budget has pegged fiscal deficit at 3.5 percent of GDP in current year ending March, higher than 3.2 percent targeted earlier.
For the next fiscal, the deficit is projected to be 3.3 percent of GDP.
“The government has kicked out its steady 3 percent fiscal deficit target further to 2020-21, well beyond its term.
This compares to its initial medium-term fiscal plan of 2014, when it first announced to postpone the 3 percent target by one year from 2016-17 to 2017-18,” Rookmaaker said.
The government’s commitment to embrace the recommendation of the FRBM committee to adopt a ceiling of 40 percent of GDP for central government debt is positive, even though the temporary delay in consolidation makes it unlikely that this debt level will be reached by 2022-23, as recommended by the committee last year, Rookmaaker said.
Citing weak fiscal position, US-based agency Fitch in May last year had kept India’s sovereign rating unchanged at ‘BBB-‘, the lowest investment grade with stable outlook.
Bureau Report
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