Global Economy

Fitch says fiscal prudence unlikely to impact India’s sovereign rating

India’s sovereign rating is unlikely to change despite the government’s push for fiscal consolidation, as the general government debt is expected to stay above 80% of GDP over the next five years, Fitch said Friday.
“Over the next five years we forecast India’s government debt to GDP ratio to be broadly stable just above 80% of GDP. This is based on a continued path of gradual deficit reduction, as well as robust nominal growth of around 10.5% of GDP,” it said in its review of the interim budget.
The global rating agency, earlier this month, affirmed India’s ‘BBB-’ rating with a Stable Outlook in January.
“The targeting of 5.1% of GDP deficit in FY25 demonstrates that the government is strongly committed to reducing the deficit and achieving its deficit target of 4.5% by FY26, while maintaining a critical focus on much-needed infrastructure development,” it said, however, pointing out that the country’s debt to GDP and fiscal deficit ratios were still higher than peers.

While Fitch forecast a deficit ratio of 5.4% in FY25, it noted that going by the previous record, the government could achieve a lower 5.1% fiscal deficit to GDP ratio in FY25.

The government’s fiscal deficit in FY24 at 5.8% is expected to be lower than 5.9% budgeted for the year. On the growth front, Fitch expects GDP to expand 6.5% in FY25.“The continued emphasis on capex investment should remain supportive of the growth outlook in FY25, where we forecast real GDP growth of 6.5%,” it pointed out.

The government is expected to spend Rs 11.11 lakh crore on capex in FY25, 16.9% higher compared with FY24’s revised estimates.

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