Nirmala Sitharaman’s budget advances reforms, but fiscal settings not changed much; Fitch explains why

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Published: July 10, 2019 1:20:26 PM

Even as the budget proposed some economic reforms to boost the economy, the fiscal scenario has remained largely unchanged, a global rating agency.

Aadhaar can be used for cash transactions beyond Rs 50,000 in place of PAN: Revenue SecyFinance Minister Nirmala Sitharaman lowered the fiscal deficit target to 3.3 per cent from 3.4 per cent in FY20 in the first budget of Prime Minister Narendra Modi after getting re-elected. 

Even as the budget proposed some economic reforms to boost the economy, the fiscal scenario has remained largely unchanged, a global rating agency. Finance Minister Nirmala Sitharaman hasn’t outlined any plans for ‘meaningful’ consolidation in the union budget 2019, Fitch Ratings also said. The budget’s thrust on the policy measures and fiscal targets is majorly consistent with the interim budget announced before general elections, it added. Finance Minister Nirmala Sitharaman lowered the fiscal deficit target to 3.3 per cent from 3.4 per cent in FY20 in the first budget of Prime Minister Narendra Modi after getting re-elected.

Fiscal deficit

The government may have signalled its intent to continue with economic reforms in its second term as well, it falls short of indicating prospects for significant fiscal consolidation in the coming years, Fitch Ratings also said. It’s unlikely for the government to meet the fiscal deficit targets of 3 per cent in FY21 and FY22, the rating agency said, adding that the debt ceiling of 60 per cent will be met by FY25, as stipulated in the FRBM Act.

Also read: Cost of capital to go down by year end: Sanjeev Sanyal

The benefits that the measures in the budget propose depend on the policy details that are yet to be announced, it added. “Some measures could weigh on growth over time, such as higher import duties on many products to “provide a level playing field to domestic industry”, it added.

PSB recap

The government has proposed Rs 70,000 crore of capital infusion plan in the budget. Fitch Ratings says that the proposed plan may help the PSU banks to meet their minimum regulatory capitalisation requirements, however, considering the bad loans and recoveries and ongoing provisioning may not provide much room for the public lenders to fasten growth of credit in FY20.

Off-budget borrowings

Even though off-budget spending may increase, the overall deficit may not be affected by much, it added. However, the debt level may rise as a result, Fitch noted. “Weak public finances are a key constraint on India’s ‘BBB-‘/Stable sovereign rating, which we affirmed on 4 April 2019.” the rating agency said.

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