Budget short on structural reform announcements: Fitch Ratings

New Delhi: Fitch Ratings said on Wednesday that India’s budget for the fiscal year beginning April is focused on fueling the ongoing economic recovery through a sharp increase in capital expenditure, but with key growth-enhancing structural reform announcements. But less.

The deficit target presented in the Union Budget 2022-23 on Tuesday by Finance Minister Nirmala Sitharaman is “slightly higher than our forecast when we reaffirmed India’s ‘BBB’/negative sovereign rating in November,” said Jeremy Zook, director and primary sovereign analyst he said. For India, Fitch Ratings.

While it was widely expected that the fiscal deficit in the current fiscal ending March 31, 2022, would be less than the targeted 6.8 per cent of GDP, Sitharaman put the number at 6.9 per cent.

“Last year’s budget target is unlikely to meet our expectation of modest fiscal outperformance in (current) FY22,” Fitch said, with a revised deficit of 6.9 percent of GDP against our forecast of 6.6 percent in the budget. Is.” “The FY23 deficit of 6.4 per cent of GDP is also higher than our previous 6.1 per cent forecast.”

Sitharaman’s Rs 39.45 lakh crore budget details more spending on highways for affordable housing to help key engines of the economy recover from the pandemic.

“This budget reflects the government’s focus on promoting the ongoing economic recovery through a sharp increase in capital expenditure, relying on economic growth and buoyant revenues to achieve its fiscal stability objectives,” Zook said.

The deficit at the state level could put further pressure on our normal government fiscal deficit measure, highlighted the borrowing allowance at 4.0 per cent of Gross State Domestic Product (GSDP) in FY 2013 (April 2022 to March 2023).

The rating agency said, “From a rating perspective, we see India as a limited financial space because it has the highest general government debt ratio of any ‘BBB’-rated emerging market sovereign at less than 90 percent of GDP. “

The gradual pace of fiscal consolidation continues to put pressure on nominal GDP growth to facilitate a downward trajectory in the debt ratio, which is crucial to resolve the negative outlook on sovereign ratings, it said.

“We will assess whether the growth impact of the capex drive is sufficient to offset the higher than expected deficit and keep the debt ratio slightly downward,” Zook said. “Our growth forecast is at a high of consensus expectations of 10.3 per cent in FY23 and around 7 per cent on average during FY27.”

The planned acceleration in infrastructure capex drive will drive near- and medium-term growth when fully implemented. However, the potential risks from the pandemic, the stagnation of private consumption in the face of constrained household incomes and the recent setbacks to the reform campaign are headwinds, Fitch said.

“Beyond the capex drive, the budget was short on key growth-enhancing structural reform announcements, in our view,” Zook said. Read also: Google will create more products in India for the world: CEO Sundar Pichai

“The economic and revenue assumptions underpinning the budget are largely credible and the disinvestment target is more achievable than last year’s budget. The government is building on its efforts to improve budget transparency while keeping earlier off-budget spending. Also going on. Budget.” Read also: Budget 2022: Sovereign green bonds, battery swapping policy to help achieve renewable energy targets, says Sunsource CEO

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