The rating agency said most assumptions in the Budget are credible
The rating agency said most assumptions in the Budget are credible

Budget targets slide amid growth slowdown: Fitch Ratings

ANI | Updated: Feb 05, 2020 14:32 IST

Hong Kong, Feb 5 (ANI): The Union Budget for fiscal year ending March 2021 (FY21) implies a modest degree of slippage from previous targets to consolidate public finances, Fitch Ratings said on Wednesday.
The budget projects a deficit of 3.5 per cent in FY21 and implies a further postponement of the government's medium-term fiscal deficit target of 3 per cent of GDP as it prioritises efforts to support economic growth in the context of the ongoing sharp slowdown.
A slippage of 0.5 per cent of GDP in both FY20 and FY21 relative to the earlier targets is in line with the tendency for deficit outturns to exceed targets in the past few years.
Finance Minister Nirmala Sitharaman projected that the deficit will fall from 3.8 per cent of GDP in FY20 to 3.5 per cent in FY21.
"We believe most assumptions in the Budget, such as nominal GDP growth of 10 per cent and a 9.2 per cent rise in fiscal revenues, are credible," said Fitch.
"However, risks are likely skewed towards the downside, particularly for revenues in light of previously announced cuts in the corporate income tax rate and newly unveiled income tax rate reductions," it added.
These tax cuts may stimulate economic activity in the medium term, but their impact on fiscal revenues is likely to be negative in the short term.
Another downside risk in the government's fiscal projections is the degree to which it expects asset sales to fill the revenue gap left by tax cuts. Its divestment target for FY21 is around three times as large as its expected total for realised sales in FY20.
To achieve this, the government will have to address its persistent tendency to fall short of announced asset-sale targets. Asset sales in FY20, for example, were only 40 per cent of the planned total.
Fitch said the Budget was light on new structural reforms although the government had already unveiled some measures last year. The Finance Minister announced some easing of restrictions on foreign portfolio inflows, and schemes to encourage manufacturing in the electronics and textile sectors.
"However, we have not materially altered our forecasts for India's economic growth which we expect to pick up to 5.6 per cent in FY21 from 4.6 per cent in FY20." (ANI)