MUMBAI (Reuters) -India could find it challenging to meet the fiscal deficit target of 4.5% of GDP in 2025-26, an analyst at Fitch Ratings said on Wednesday, adding that the country’s sovereign rating continues to remain stable.
Fitch has a BBB- rating on India with a ‘Stable’ outlook.
“Essentially, it (the fiscal glidepath) implies further consolidation of about 0.7% of GDP for each of the following two fiscal years,” Jeremy Zook, director for Asia Sovereign Ratings at the global rating agency, told Reuters.
“If we look at the recent deficit reduction trend, it seems like it would be a bit more difficult and absurd to achieve that level of deficit reduction.”
The government’s budget gap, which hit a high of 9.5% of GDP in 2020/21 as the spread of COVID-19 infections brought the economy to a halt, has narrowed since but remains well above the medium-term goal of 4.5% of GDP by 2025/26.
The government is targeting a budget deficit of 5.9% of GDP for 2023/24, while the deficit was 6.4% in 2022/23, according to revised estimates.
Earlier in the day, an official at Moody’s (NYSE:MCO) Investors Service had also said that the government’s fiscal deficit target for 2025/26 could see some risks.
Global economic headwinds,cgeopolitical risks, and high commodity prices could potentially pose risks to the government’s fiscal math, Fitch’s Zook said.
“If you were to see commodity prices rise significantly, that could lead to some renewed pressure to maintain subsidies that are at a higher level in an election year,” Zook said.
“That could lead to some fiscal slippage and potentially higher and higher borrowing costs for the government.”
The ruling Bhartiya Janata Party faces elections in key states this year and a national vote in 2024.
India continues to have gaps in terms of its infrastructure and reducing those gaps should be positive for medium-term growth, thereby helping the country sustain higher growth rates over the medium term, Zook said, pegging India’s GDP growth at 6.2% for 2023-24.
Source: Economy - investing.com
