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Govt not worried about credit downgrade; moving on right track: FinMin

09 Jan 2013 Evaluate

Not worried about the threat of ratings downgrade by global agencies like Fitch, the finance ministry said, the government is moving on the right path and will limit fiscal deficit to 5.3% of the Gross Domestic Product (GDP) in 2012-13 and will be staying to fiscal consolidation roadmap.

The statement comes on the back of Fitch Ratings reiterating its stand on the country’s outlook saying, India may face a downgrade in 12-24 months, adding that the government may miss its fiscal deficit target. The rating agency reinstated its ‘negative’ outlook on India's sovereign credit rating, referring to concerns regarding slowing economic growth, persistent inflationary pressures and an uncertain fiscal outlook.

Department of Economic Affairs (DEA) Secretary Arvind Mayaram said that the government has taken a number of steps to restrict the fiscal deficit to 5.3% of the GDP during the financial year, and would continue the process in the subsequent years as well. Earlier, for the financial year ending March 2013, the finance ministry had budgeted the fiscal deficit at Rs 5.14 lakh crore, or 5.1% of GDP, but raised the target to a more acceptable level of 5.3% of GDP last month, mainly on the back of rising expenditure and subdued growth in revenue collection.

For the first eight months of the current financial year, the fiscal deficit - the gap between expenditure and revenue collection - was Rs 4.13 lakh crore, as per the Controller General of Accounts data released end-December - slightly better than the fiscal deficit position of last year, when it was 85.6% of the Budget target. Net tax receipts during the April-November period stood at Rs 3.7 lakh crore, while total expenditure was about Rs 8.67 lakh crore.

Terming India's macroeconomic trends ‘disappointing, Fitch said it is awaiting the final fiscal numbers for the current year and that the Union Budget for the fiscal year 2013-14 will be important for ratings. Further, the rating agency also added that the high current account deficit is a concern and the ability to fund the deficit is crucial.

Last month, another global agency Standard & Poor's had said that India faces one-in-three chance of rating downgrade in the next 2 years in case the government fails to push reforms in view of the political deadlock and ensuing general election in 2014.

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