India on Wednesday made a strong pitch to Fitch for a rating upgrade, citing improving growth prospects, fiscal discipline and stabilisation of the goods and services tax (GST) regime.
Senior officials at the finance ministry are learnt to have told executives of the rating agency that the Centre will go on the path of fiscal consolidation and will trim the fiscal deficit to 3% of the GDP by 2020-21. Before Fitch’s annual review of India’s sovereign rating, officials have said the government contained fiscal deficit at 3.5% despite the fact that GST revenue would be collected for only 11 months this fiscal.
Fitch director – sovereign ratings Thomas Rookmaaker and other officials met economic affairs secretary Subhash Chandra Garg, chief economic advisor Arvind Subramanian and principal economic advisor Sanjeev Sanyal. Fitch has a BBB-, the lowest investment grade sovereign rating on India, with a stable outlook. The agency has maintained the same rating for the country for more than 11 years now.
Ministry officials are also learnt to have told Fitch that the country is sticking to fiscal discipline conscious of the fact that a slippage could ultimately stoke inflationary pressure.
The government will introduce amendments to the FRBM Act in the ongoing Budget session of Parliament, specifying the consolidation road map. According to the road map, the fiscal deficit will be lowered to 3.3% in the next fiscal, to 3.1% in 2019-20 and 3% by 2020-21.
Sources said the rating agency also raised queries on the recent $2-billion fraud at Punjab National Bank. The ministry has said that investigation is on and action would be taken against those found to have been involved once the probe is over.
On the GST, the ministry told Fitch that the new indirect tax regime has almost stabilised and it expects a pick-up in revenue collection in the next seven-eight months.
On fiscal deficit, finance minister Arun Jaitley had last month said most of the fiscal deficit slippage of 30 basis points from the target for this fiscal would have been bridged had the government factored in full-year GST collection, instead of that of 11 months, following introduction of a new accounting system. He said earlier indirect taxes for a particular month were collected in that very month. However, since GST for a particular month is collected only by the third week of the next month, the government will be able to collect revenue for only 11 months in the first year of its launch; hence the shortfall in indirect tax revenue.