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  3. Govt’s emphasis on deficit reduction to help to stabilise debt-to-GDP ratio over medium term: Fitch

Govt’s emphasis on deficit reduction to help to stabilise debt-to-GDP ratio over medium term: Fitch

05 Feb 2024 Evaluate

Fitch Ratings in its latest report has said that the slightly faster pace of fiscal deficit reduction does not significantly change India's sovereign credit profile but the government's emphasis on deficit reduction will help to stabilise the debt-to-GDP ratio over the medium term. In the interim Budget 2024-25, the government revised lower its current year fiscal deficit to 5.8 per cent from 5.9 per cent budgeted earlier. The deficit, which is the gap between the government's revenue and expenditure, will come down to 5.1 per cent in 2024-25 and further to 4.5 per cent by 2025-26. Fitch said this demonstrates a firm desire to adhere to a path of gradual fiscal consolidation even amid an election year. 

Fitch Ratings Director, Sovereign Ratings, Jeremy Zook said over the next five years, India's government debt-to-GDP ratio would be broadly stable at just above 80 per cent of GDP. 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. He said ‘the budget was broadly in line with our expectations, though with a slightly faster pace of deficit reduction, from when we affirmed India's 'BBB-' rating with a Stable Outlook in January.

He said as such, it does 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 deficit reduction helps to stabilise the debt ratio over the medium term. He added that this Budget was important in signalling the current government's clear commitment to fiscal consolidation and its capex agenda, should it return to office.


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