Budget 2021 Reactions LIVE: What Fitch, which rates India BBB-, has to say about Budget 2021's deficit-spending approach
Budget 2021 showed govt is not afraid of taking on more debt despite the BBB- negative rating — which CEA said is unreal for the world's fifth-largest economy. Now here's what Fitch has to say about Budget:
- Deficit targets higher, medium-term consolidation more gradual, than we expected
- Placed India’s ‘BBB-’ rating on negative outlook in June 2020, in recognition of pandemic’s impact on growth, challenges of the high public debt burden
- Govt's prioritization of fiscal support for health and well-being, ongoing economic recovery understandable.
- There is little fiscal space given India’s high public debt ratio prior to the virus shock
- We view the economic and revenue assumptions underpinning the budget to be largely credible
- Disinvestment revenue target appears optimistic at over three times higher than the level achieved in FY20
- Budget takes positive steps toward improving fiscal transparency, particularly by bringing the loans from the FCI onto the budget
- Wider deficits, gradual pace of consolidation will lift India’s govt debt, put more onus on the nominal GDP growth outlook in our assessment of medium-term debt trajectory, which is core to our view of India’s sovereign rating
- Signs of a weaker-than-anticipated economic recovery or a reassessment of medium-term growth potential would make it more challenging to achieve a downward trend in the debt ratio, add to pressure on the rating
- Forecast real GDP to rebound by 11% in FY22 and grow around 6.6% per annum through FY26
- Higher expenditure, particularly the increase in infrastructure spending in FY22, will likely be supportive of the near-term recovery
- Proposed establishment of an ARC/AMC to deal with bad assets in the banking sector is a potential positive