Budget seeks to maintain balance between Growth & Deficit: Fitch Ratings

New Delhi: The Indian Budget for 2023-24 presented by Finance  Minister Nirmala Sitharaman in Parliament seeks to maintain a  balance of sustaining a growth focus and deficit reduction, said  Jeremy Zook, Director and Primary Sovereign analyst for India,  Fitch Ratings. According to Zook, the Budget was largely in line with Fitch
Ratings expectations and did not significantly change the  sovereign credit profile. India’s fiscal deficit and government debt ratio are high relative to  peer medians, but the government’s emphasis on reducing the  deficit helps to stabilise the debt ratio over the medium term, Zook  remarked. “This Budget sought to maintain a balance of sustaining a growthoriented focus through a further increase in capex spending while  maintaining an eye toward deficit reduction. The government  aims for modest fiscal consolidation while accommodating a  higher capex spend and changes to income tax slabs, largely by  substantially reducing subsidies in the coming year,” Zook said.
Adding further, Zook said that given the uncertainty in the global  economy and commodity prices, there is potential downside risk  to the deficit target before the next general elections, in particular  in the event that a shock such as another commodity price spike  leads to pressures for sustained subsidy spending. The Budget’s nominal growth and revenue assumptions are  broadly credible, in our view, though risks remain tilted to the  downside given the uncertain global outlook. The government’s  real GDP growth assumption of 6.5 per cent is slightly higher  than our 6.2 per cent, but nominal growth forecasts are similar,  Zook said. The government’s continued emphasis on ramping up  capex spending should provide a fillip to both near- and  medium-term growth. According to Zook, India is well-placed to sustain higher rates of  growth in the medium term than many of its peers, with the  capex drive helping to underpin this view. It is likely to be challenging for the Indian government to achieve  its 4.5 per cent of GDP deficit target by FY26, as achieving this  target implies an additional 0.7 per cent of GDP consolidation in  each of the subsequent two fiscal years. Nevertheless, the  commitment to reducing the fiscal deficit is a positive signal for
debt sustainability. “Over the next five years, we forecast India’s government debt to  GDP ratio to stabilise at around 82 per cent. This is based on a  continued path of gradual deficit reduction, as well as robust  nominal growth of around 10.5 per cent of GDP. Our robust  growth outlook for India is a key factor supporting the  stabilisation of the debt ratio in the absence of stronger deficit  reduction,” Zook said .