Union Budget 2017-18 shows India’s commitment to improve fiscal performance but heavy debt burden and weak public finances remain key rating constraints, S&P Global Ratings said today. Finance Minister Arun Jaitley presented the Budget for next fiscal in Parliament yesterday in which he planned to cut fiscal deficit to 3.2 per cent and 3 per cent of GDP for next financial year and 2018-19 respectively. The deficit in the current fiscal is estimated to be 3.5 per cent of GDP.
“India’s 2017-2018 budget illustrates the government’s commitment to improving its fiscal performance over the medium term, despite the hit to near-term growth from the demonetisation initiative,” S&P said.
Jaitley in his Budget speech has said the Fiscal Responsibility and Budget Management (FRBM) review committee has favoured lowering government’s debt to GDP ratio to 60 per cent by 2023. Currently, the ratio stands at 68.5 per cent.
S&P said if the government’s reforms “markedly improve” its general government fiscal out-turns so that this ratio falls below 60 per cent, “positive upward pressure on India’s sovereign ratings may build”.
“At the same time, we continue to see India’s overall heavy burden and weak public finances as key rating constraints,” the US-based rating agency said.
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In November S&P had ruled out any upgrade in India’s sovereign rating through 2017 saying it wants to see more efforts to lower government debt to below 60 per cent of GDP and that it did not expect revenues to rise enough to meaningfully lower the deficit over the medium term.
It maintained the lowest investment grade rating of ‘BBB-‘ with a ‘stable’ outlook.