High fiscal deficit, slow consolidation threaten India's sovereign rating

Mumbai, Ta. 02 February 2021, Tuesday

A higher fiscal deficit and a slower pace of consolidation will increase the debt of the Indian government and increase pressure on its sovereign ratings, Fitch Ratings has warned. Fiscal power is also said to be limited due to high debt.

At the end of the current financial year, the country's fiscal deficit is expected to be 6.50 per cent. Which is much higher than the initial estimate of 7.50%. Analysts had projected a deficit of seven per cent at the end of the year.

The budget estimates that the fiscal deficit will be 6.50 per cent at the end of the new financial year 2021-2, starting April. The target is to bring the fiscal deficit to 7.50 per cent by FY 205-6.

The fiscal deficit in the budget presented by the finance minister is very high and the medium-term consolidation is slower than we expected, according to a report by Fitch Ratings' Asia-Pacific Sovereign team. Fitch has given India a negative outlook for ratings with BBB in June last year. These ratings have come as a result of the serious impact of the epidemic on the country's economic growth rate and the challenges of high debt burden.

The government's standard for providing priority support for healthcare and economic recovery is understandable, but the fiscal scope is very limited given the country's high public debt burden, the report said. Even before the Corona outbreak, the debt burden on the government remained high.

Public debt is around 20% of GDP. For BBB ratings, this ratio should be limited to 5%.