India?s proposed budget deficit of 6.8% of the gross domestic product, the widest in 16 years, is ?within the boundary of our expectation,? according to Standard & Poor?s.
The prospect of a wider fiscal gap had already ?prompted us to change the outlook on India to negative? after the government said in its February Interim Budget that an additional stimulus of 0.5% to 1% of the GDP may be required, Takahira Ogawa, a Singapore-based director of sovereign ratings at S&P, said on Monday.
?Unfortunately, there was no significant information on the road map for the fiscal consolidation or details for the divestment plan for state-owned companies,? Ogawa said. The government may provide a broader picture on how it will reduce the deficit when it unveils a report later in the year, he added. Standard & Poor?s has a BBB- rating on India?s foreign currency long-term debt, the lowest investment grade.
?If the Indian government failed to consolidate its fiscal position in the near future, by the delay of the recovery of the country?s macro economic growth in the medium term or by other factors, there is a risk for the downward revision of our ratings on India,? Ogawa said. ?Conversely, if the government begins materially narrowing the public sector?s deficits again, the ratings may stabilise at the current level,? he said.
Sherman Chan, economist, Moody?s Economy.com, an entity of Moody?s, said, ?The 2009-2010 Fiscal Budget may not please all, but is a fair effort by the government to address two important existing concerns. The authorities have set an ambitious target: boosting growth to 9% at the earliest while promoting inclusive development.? Therefore, policymakers took expansionary steps in a wide range of areas, including trade finance, farm subsidies, rural health, food security for poor households, and environment protection. However, given the heavy debt burden and yet another large fiscal deficit projected?at 6.8% of the GDP?the Indian government could not afford overly aggressive moves. The latest fiscal boost are all relatively moderate, he added Fitch Ratings said that the impact of the Union Budget on corporates is expected to be broadly neutral.