The Weekend Leader - Fiscal slippage announced in Budget is 'modest', says Fitch Ratings

Fiscal slippage announced in Budget is 'modest', says Fitch Ratings

New Delhi


 Fitch Ratings on Monday said that the current year's fiscal slippage announced in the governments new 2020-21 budget was modest relative to its previous targets.

Presenting the budget for the next financial year on Saturday, Finance Minister Nirmala Sitharaman announced the fiscal deficit for the current fiscal will be 3.8 per cent, which is higher than the earlier estimated 3.3 per cent.

"The fiscal slippage announced in the government's new FY21 budget is modest relative to its previous targets, and is consistent with our expectations when we affirmed India's ‘BBB-' rating with a Stable Outlook last December, given slowing growth momentum", said Thomas Rookmaaker, Director and Primary Sovereign analyst at Fitch Ratings India.

Rookmaaker said that the new budget targets imply some further postponement of fiscal consolidation, in line with the government's ambivalent approach to consolidation of the past few years when deficit outturns have typically exceeded budget targets.

"We project general government debt to remain close to 70 per cent of GDP through FY22. India's high public debt relative to peers is a rating weakness," he said.

Fitch also said that the budget does not "materially alter our view on India's economic growth outlook, which we forecast to pick up to 5.6 per cent in FY21 from 4.6 per cent in FY20. That said, we believe the budget contains some measures which may support GDP growth in the medium-term, including reduced individual income tax rates, some easing of restrictions on foreign portfolio inflows."

"We view the assumptions in the budget, including nominal growth of 10 per cent and a rise in revenues by 9.2 per cent as broadly credible, although we see risks to the downside.

"In particular, reductions in the corporate tax rate, as previously announced, and new cuts in income tax rates are likely, in our view, to cause tax revenues to fall in the short run, before any potential medium-term benefits materialise; the divestment target appears optimistic, at over three times the estimated realisation in FY20," it added.IANS 

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