Swifter Pace Of Fiscal Deficit Reduction Will Not Impact India’s Credit Profile: Fitch

FM Nirmala Sitharaman lowered the fiscal deficit target at 5.8 per cent for FY24, 5.1 per cent for FY25, 4.5 per cent for FY26, in the Budget document released on Thursday

The slightly swifter pace of fiscal deficit reduction will not significantly change India’s sovereign credit profile, Fitch Ratings said on Friday. The ratings agency maintained that the move will, however, help stabilise the debt-to-GDP ratio over the medium term. 

Commenting on the Budget announcements, 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,” reported PTI. 

Notably, Finance Minister Nirmala Sitharaman tabled the Interim Budget 2024 in the Parliament on Thursday, and said that the government is revising down its fiscal deficit target to 5.8 per cent from 5.9 per cent of the GDP for the ongoing fiscal year. For FY25, the minister set the fiscal deficit target at 5.1 per cent and further lower at 4.5 per cent for 2025-26 fiscal year. 

Zook noted, “This demonstrates a firm desire to adhere to a path of gradual fiscal consolidation even amid an election year. The budget presented on Thursday 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. 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.”

The executive added that the Budget remained crucial in indicating that the government remains committed to fiscal consolidation and its capex agenda, if it comes back to office after the Elections.

Earlier on Thursday, Moody’s Investors Service, also said that the Budget showcases the government’s inclination towards its fiscal consolidation goals. Christian de Guzman, Senior VP, Moody’s noted, “The government demonstrated fiscal restraint in not resorting to large handouts or increasing discretionary spending ahead of this year's elections.”