Fitch Ratings Raises Concerns Over The Fiscal Deficit Targets Laid Down By Nirmala Sitharaman In Budget 2022


Global ratings agency Fitch raised concerns over the fiscal deficit targets laid down by Finance Minister Nirmala Sitharaman in Budget 2022, and said the targets for next fiscal are higher than its forecast of 6.1%. Sitharaman has budgeted the fiscal deficit to be 6.4% of the GDP for upcoming fiscal, higher than what experts had expected. Fitch also said the fiscal deficit target for current FY also appears unlikely to materialize, reported Financial Express. For the current year, the finance minister said the fiscal deficit will be 6.9% i.e. 0.1% higher than the government’s target.

India has the highest general government debt ratio of any ‘BBB’- rated emerging market sovereign, Fitch Ratings said. It affirmed India’s sovereign rating at BBB- or negative last year in November. “From a ratings perspective, we see India as having limited fiscal space as it has the highest general government debt ratio of any ‘BBB’-rated emerging market sovereign at just under 90% of GDP,” Jeremy Zook, Director and Primary Sovereign analyst, India for Fitch Ratings said in a note Wednesday.

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The agency is optimistic about near and medium-term growth. “Our growth forecast is on the high side of consensus expectations at 10.3% in FY23 and about 7% on average through FY27. The planned acceleration in the infrastructure capex drive will likely provide a fillip to near and medium-term growth, if fully implemented. However, potential risks from the pandemic, the durability of private consumption in light of constrained household incomes and recent setbacks to the reform drive pose headwinds,” Zook  said.

The Finance Minister announced that the government has increased capital expenditure for the next fiscal by 35.4% to Rs 7.5 lakh crore or 2.9% of India’s GDP in her budget 2022 speech. This will be driven by schemes focusing on capex-led infrastructure development through seven engines of the government’s PM GatiShakti plan i.e. roads, railways, airports, ports, mass transport, waterways, and logistics Infrastructure. In terms of sectors, transport accounted for about 9.3% or Rs 3.52 lakh crore of the total capital outlay for next year.

Last year, the International Monetary Fund said India’s debt to GDP ratio increased from 74% to 90% during the COVID-19 pandemic, noting that it expects this to drop down to 80% as a result of the country’s economic recovery. A higher debt-to-GDP ratio indicates higher chances of default.

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