The Budget has received a mixed response from global rating agencies with the US-based S&P saying that the annual financial document seeks to keep the fiscal deficit in check despite subdued revenue growth.
“India’s 2015-16 Budget highlights the government’s commitment to keep the fiscal deficit low despite lower-than-expected revenue growth,” Standard & Poor’s said.
Another rating agency Moody’s said the Budget has prioritised growth over fiscal consolidation but it may not have any impact on the country’s sovereign rating.
Fitch, however, said that the Budget has both positive and negative elements and that India’s medium-term fiscal consolidation strategy is less inspiring.
Rolling out a new fiscal consolidation roadmap, Finance Minister Arun Jaitley had said in the Budget that fiscal deficit would be brought down to 3.9 per cent of GDP in 2015-16, and then further to 3.6 per cent and finally to 3 per cent by 2016-17 and 2017-18, respectively.
The Finance Minister had said that the government would achieve the 3 per cent fiscal deficit target by 2017-18 as against 2016-17 as it intends to increase public investment to boost growth.
S&P said this commitment moderates the drag on sovereign credit support posed by the relatively heavy general government debt burden in India.
Besides, Moody’s said the credit impact of the Budget will depend on whether its implementation facilitates growth that is primarily driven by government expenditure or growth that sets the stage for higher savings, investment, productivity and profitability.
“India’s Budget, which prioritises growth over deficit reduction, is unlikely to materially change India’s sovereign credit profile, which is supported by the economy’s robust growth but constrained by the government’s weak fiscal metrics,” Moody’s said.
It said the Budget contains several measures that, if effectively implemented, will accelerate India’s GDP growth.
Arun Jaitley, in his Budget speech, had said that growth in 2015-16 is expected to rise to 8-8.5 per cent, from 7.4 per cent in current fiscal.
Fitch said the disinvestment target would again “prove difficult to reach”, but the government should be able to meet the tax revenue target.
“The medium term fiscal consolidation strategy is less aspiring than in the past, which is negative from a sovereign rating perspective,” the rating agency said, adding that a gradual implementation of many small reforms is likely to have a significant impact on growth.
S&P had upgraded India’s credit rating outlook from negative to stable in September on hopes of reforms.
Prior to that, it had voiced concerns about lack of growth, a sense of “policy paralysis” and the high fiscal deficit, and had even threatened to downgrade the rating to junk.
All the three big international rating agencies such as S&P, Moody’s and Fitch have ‘BBB’ ratings on the country’s sovereign with a stable outlook.
The current rating is closest to junk status or below investment grade.