“Higher expenditure will support the near-term recovery and increased infrastructure spending could boost sustainable medium-term growth rates,” Fitch said.
However, the accompanying loosening of fiscal policy and consequently higher debt levels would make the country’s medium term growth outlook more critical.
“The debt/GDP trajectory is core to our sovereign rating assessment, meaning higher deficits and a slower consolidation path will make India’s medium-term growth outlook take on a more critical role in our analysis,” it said.
India would find it more difficult to bring its debt-to-GDP ratio on the downward trajectory considering the budget’s fiscal deficit projections were about 1 percentage point higher than what it had estimated, Fitch said.
On February 1, finance minister Nirmala Sitharaman announced that India’s revised fiscal deficit estimate for FY21 stood at 9.5% of GDP against the previous target of 3.5%, while the figure for FY22 was pegged at 6.8%.
The agency projected India’s debt-to-GDP ratio at over 90% for the coming five years, based on the revised figures of the budget, but its estimate of the economy’s growth and debt trajectory could be influenced by some of the measures and policy reforms announced in the budget.
In June last year, Fitch revised its outlook on India’s BBB- credit rating to negative from stable, while in January this year, it forecast growth for FY22 at 11% and a medium term growth of 6.5% per year till FY26.
While there were risks to implementation of certain aspects of the budget, the overall fiscal projections are broadly credible, Fitch said, adding that the increased transparency of bringing loans from the Food Corporation of India into the budget was a positive step.