1. India’s ‘less aspiring’ fiscal consolidation strategy negative for ratings: Fitch

India’s ‘less aspiring’ fiscal consolidation strategy negative for ratings: Fitch

Finance Minister Arun Jaitley has announced a budget that put boosting growth before painful reforms, slowing the pace of fiscal deficit cuts...

By: | Mumbai | Published: March 2, 2015 12:08 PM
Union Budget 2015, Arun Jaitley, Fiscal deficit

Finance Minister Arun Jaitley addressing the post annual budget press conference in New Delhi. Jaitley has announced a budget that put boosting growth before painful reforms, slowing the pace of fiscal deficit cuts. (PTI)

India’s budget could have been more ambitions on the fiscal front, especially given a high public debt burden, and the less aspiring fiscal consolidation strategy is negative for ratings, an analyst at Fitch Ratings said on Monday.

Finance Minister Arun Jaitley on Saturday announced a budget that put boosting growth before painful reforms, slowing the pace of fiscal deficit cuts and seeking to put domestic and foreign capital to work.

“The medium-term fiscal consolidation strategy is less aspiring than in the past, which is negative from a sovereign rating perspective,” Thomas Rookmaaker, director at Fitch’s Asia-Pacific Sovereign Group wrote in an email.

“If disinvestment would be treated as a “below the line” financing item, as is international best practice, instead of a revenue item, the fiscal deficit would actually rise from 4.3 per cent in FY15 to 4.4 per cent in FY16,” he added.

Tags: Union Budget
  1. C
    C R
    Mar 5, 2015 at 8:14 pm
    Dear Mr Snowden, Government collects Rs 1.16 lakh crore under PM Modi’s Jan Dhan Yojana in less than six months. :www.dnaindia/money/report-government-collects-rs-116-lakh-crore-under-jan-dhan-yojana-2047985 Directorate of Revenue Intelligence (DRI) top officials estimate the smuggling at 500kg a day with less than 1% of the illegal consignment getting booked by law enforcers. Thus implying a monthly Rs4,500 crore of illegal imports at current market prices or Rs54,000 crore annually. :www.dnaindia/mumbai/report-500-kg-of-gold-smuggled-into-india-every-day-1929753 The annual Savings in India for the years 2010, 11, 12 & 13 were 32.2%, 30.0%, 28.0% and 27.8 % respectively. :data.worldbank/country/india And if you know the Indian mind-set, there is more money with Indian people than the loans taken from you or anybody. The amount of gold collected over the centuries is tremendous. Action is required to bring the money into equity market and the development work. What has happened, some unscrupulous people have caused mive pain to the investors, who have now lost faith in the system. They are not ready to invest in the equity market. They are looking at tangible savings. They are well aware of money value depreciation due to inflation. But it is more than losing everything in the share market. The government and the regulators should have promptly taken action. They should have reinstated the investor’s faith with proper laws and quick action. But instead of that they are trying to woo the wrong people.
    Reply
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      C R
      Mar 2, 2015 at 6:31 pm
      We should stop paying attention to these foreign agencies. Their aim is to see that we have policies conducive to their growth and welfare and not of India.
      Reply
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        C
        Mar 3, 2015 at 7:24 am
        Without increasing the saving rate, one can't aspire for higher investment. India's saving rate has come down from the peak of 38 percent of the GDP achieved in 2008 to less than 31 percent presently. This compares to China's 52 percent. The other alternative was to borrow more which would lead to higher fiscal deficit and make the country's credit rating below the investment grade. Increasing FDI was the other option; but they would ask for their pound of flesh. Further, the FM has not removed the past legacies of the uncertainties in taxation like, retrospective amendment of tax laws (Vodafone case), GAAR, transfer pricing etc with which foreign investors were concerned. In any case for infrastructure, investment by the public sector was the least cost option; FDI and private sector would make the services more expensive. Higher taxing the rich corporates and the wealthy, reduction of subsidies to the non-poor are the means available to the FM in order to increase the public saving and investment. However, the FM has reduced the tax rate to the corporate sector. A 30 percent tax cannot be considered too high a rate. Removal of the purposeless tax incentives selectively, would have increased the average rate from the present 23 percent. If the FMCG and other companies could pay a tax of 30 percent or higher, there was no reason for others finding the same rate attractive enough for investment. After all the tax was payable only if one made profit. The FM has paid only lip service to reduction of subsidies in particular to the non-poor. The reduction one sees in the budget was due to the low price of crude oil and not due to any systemic change. So even the achievement of the CAD at one percent and fiscal deficit of 3.9 percent was dependent on the crude price remaining at current levels. The budget therefore was an extension of the previous ones with some throw-away here and there devoid of any bold plan to take India to a higher growth trajectory.
        Reply
        1. S
          Snowden
          Mar 2, 2015 at 10:16 pm
          Ignorance is bliss in your case. If our ratings go down our sovereign loans are going to cost more and thereby increasing the fiscal deficit even more.
          Reply

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