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Global ratings agency Fitch raised concerns over the fiscal deficit targets laid down by Finance Minister Nirmala Sitharaman in Budget for FY 2022-23, and said the targets for next fiscal are higher than its forecast of 6.1%. Sitharaman has budgeted the fiscal deficit to be 6.4% of the GDP for upcoming fiscal, higher than what experts had expected. Fitch also said the fiscal deficit target for current FY also appears unlikely to materialise. For the current year, the finance minister said the fiscal deficit will be 6.9% i.e. 0.1% higher than the government’s target.
India has the highest general government debt ratio of any ‘BBB’-rated emerging market sovereign, Fitch Ratings said. It affirmed India’s sovereign rating at BBB- or negative last year in November. “From a ratings perspective, we see India as having limited fiscal space as it has the highest general government debt ratio of any ‘BBB’-rated emerging market sovereign at just under 90% of GDP,” Jeremy Zook, Director and Primary Sovereign analyst, India for Fitch Ratings said in a note Wednesday.
Fitch also said the government needs to focus on reducing debt which will help in revising the outlook. “The gradual pace of fiscal consolidation continues to place the onus on nominal GDP growth to facilitate a downward trajectory in the debt ratio, which is key to resolving the Negative outlook on the sovereign rating,” Fitch said.
The rating agency, however, said that the government’s plan to accelerate infrastructure-led capex drive will provide a fillip to the economy in near and medium term, if it’s implemented fully, though concerns over new COVID-19 variant, and private consumption remain. We will be assessing whether the capex drive’s growth impact is sufficient to offset the higher than expected deficits and keep the debt ratio on a slight downward trajectory, the rating agency added.
The Finance Minister announced that the government has increased capital expenditure for the next fiscal by 35.4% to Rs 7.5 lakh crore or 2.9% of India’s GDP in her budget speech on Tuesday. This will be driven by schemes focusing on capex-led infrastructure development through seven engines of the government’s PM GatiShakti plan i.e. roads, railways, airports, ports, mass transport, waterways, and logistics Infrastructure. In terms of sectors, transport accounted for about 9.3% or Rs 3.52 lakh crore of the total capital outlay for next year.
Last year, the International Monetary Fund said India’s debt to GDP ratio increased from 74% to 90% during the COVID-19 pandemic, noting that it expects this to drop down to 80% as a result of the country’s economic recovery. A higher debt-to-GDP ratio indicates higher chances of default.
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