Fitch: India's Budget Shows Slower Fiscal Consolidation

Fitch Ratings: India's Budget Neutral for Growth, Fiscal Consolidation Slows

Fitch Ratings stated that India’s latest annual budget is broadly neutral for the nation's economic growth. The agency highlighted, however, that the budget indicates a decelerating pace of fiscal consolidation, making further deficit reduction more challenging without impacting GDP growth.

A Closer Look at India's Fiscal Targets

The Indian government has set a fiscal deficit target of 4.3% of GDP and a debt-to-GDP ratio of 55.6% for the fiscal year 2027. While both Fitch and Moody's acknowledge India's consistent fiscal consolidation efforts, they note the budget gap remains wider than pre-pandemic levels. Despite this, Fitch pointed to improved quality in government finances, driven by stronger capital expenditure and a narrower revenue deficit.

Economic Impact and Outlook

The budget is seen as neutral for India's growth, which the government projects to be between 6.8% and 7.2% in the upcoming financial year. Fitch maintains a BBB- sovereign rating for India. The agency suggested that sustained strong GDP growth could enhance India’s sovereign credit metrics over time, even as fiscal challenges persist. Continued reform momentum is expected to boost private investment and strengthen economic prospects.

Key Takeaways

While India's financial quality is improving through capital spending, overall government deficits, debt, and interest payments remain elevated compared to peers and are declining slowly. The country's credit profile improvement will depend on maintaining strong growth momentum and attracting private investment.

FAQ

Q: What is Fitch's main conclusion on India's budget?
A: Fitch views the budget as broadly neutral for GDP growth but notes a slowing pace of fiscal consolidation.

Q: What are India's key fiscal targets for 2027?
A: The government targets a fiscal deficit of 4.3% of GDP and a debt-to-GDP ratio of 55.6% for the fiscal year 2027.

Source: investing.com