Sitharaman's message to ratings agencies: Govt bettering fiscal consolidation roadmap

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Addressing any concerns that global ratings agencies may have about the India's public finances, Finance Minister Nirmala Sitharaman has sent a message to them saying the government is improving upon the fiscal consolidation roadmap it had set out.

"A simple straightforward message for every ratings agency is that we not only aligning with the fiscal consolidation roadmap we had given earlier but are even bettering it," the finance minister said on February 1 after the presentation of the Interim Budget.

In what has been widely called a positive surprise, Sitharaman announced next year's fiscal deficit target at 5.1 percent of GDP, lower than the consensus prediction of 5.3 percent. Further, the revised estimate for 2023-24 has been pegged at 5.8 percent, 10 basis points lower than the original target.

India has been in a running battle with global ratings agencies – S&P Global Ratings, Moody's Investors Services, and Fitch Ratings – as it thinks that the lowest investment grade rating assigned to the country is not a fair reflection of its economic strength.

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Commenting on the Interim Budget, Christian de Guzman, Senior Vice President and Moody's primary analyst for India, said the government's commitment to its fiscal consolidation goals has been "firmly" conveyed.

"Although political considerations likely influenced the lack of significant tax measures, the government demonstrated fiscal restraint in not resorting to large handouts or increasing discretionary spending ahead of this year's elections," de Guzman said.

Also Read: India must lower fiscal deficit 'a lot more' to get a higher rating, says S&P

He, however, questioned whether the government could meet its fiscal targets, given the challenging global environment, the potential for climate-related shocks and any spending needs that are currently not included in the budget.

"Furthermore, the envisaged fiscal consolidation will not alleviate pressures on debt affordability amidst high current interest rates, as the budget projects debt servicing costs to account for an increasingly large portion of revenue. We expect the final budget, to be released after the elections, to provide more definitive indications of India's fiscal consolidation trajectory over the medium term," de Guzman added.