After Finance Minister Arun Jaitley projected fiscal deficit of 3.5% of gross domestic product (GDP) against the target of 3.2% set earlier, global ratings agency, Fitch Ratings has said that high debt burden of the government is an obstacle to India’s sovereign rating upgrade. For the next fiscal year 2018-19, the government projected fiscal deficit at 3.3% of GDP. Besides, the US-based agency had kept India's sovereign rating unchanged at ‘BBB-’, the lowest investment grade with stable outlook, citing weak fiscal position.
Fitch Ratings Director and Primary Sovereign analyst for India Thomas Rookmaaker has said that if implemented well, spending on such measures would likely reach a large part of the electorate, which is not insignificant with general elections coming up. He also said that weak public finances constrain India’s sovereign ratings, given a high general government debt burden of around 68% of GDP and a wide fiscal balance of 6.5% of GDP if states are included.
The government has kicked out its steady 3% fiscal deficit target further to 2020-21, well beyond its term. Rookmaaker said this compares to its initial medium-term fiscal plan of 2014, when it first announced to postpone the 3% target by one year from 2016-17 to 2017-18. He further said that the government’s commitment to embrace the recommendation of the FRBM committee to adopt a ceiling of 40% of GDP for central government debt is positive, even though the temporary delay in consolidation makes it unlikely that this debt level will be reached by 2022-23, as recommended by the committee last year.
