Global rating firm Fitch has said that India has improved its fiscal credibility. However, it cautioned on higher debt-to-GDP (Gross Domestic Product) ratio compared with similar sovereign rated countries.<\/p>\n
India has \u2018BBB Minus\u2019 sovereign rating with stable outlook from Fitch.<\/p>\n
\u201cIndia has achieved or outperformed its budget deficit targets in the last few years and is improving its fiscal credibility. Its use of a recent central bank dividend to lower its deficit target for the fiscal year ending March 2025 reinforces our view that it prefers fiscal consolidation over additional spending,\u201d the agency said in its report on fiscal consolidation in Asia-Pacific countries.<\/p>\n
\u201cIndia\u2019s deficit and interest-to-revenue and debt ratios remain high compared with \u2018BBB\u2019 category sovereign peers,\u201d it said. Further, India has faced few challenges financing its large deficits, but \u201cwe believe its government remains committed to reducing the budget deficit over the medium term, even amid the demands that governing in coalition will impose on the newly elected administration \u2013 and despite the government\u2019s sustained focus on supporting economic growth through higher public capex,\u201d it said.\u00a0<\/p>\n
Fitch highlighted that India\u2019s adherence to the Fiscal Responsibility and Budget Management Act (FRBM), effective since 2004, reduced the central government\u2019s deficit in the first few years and India was upgraded to investment grade in 2006 as a result. <\/p>\n
However, the central government only once met the act\u2019s deficit ceiling of below 3 per cent of GDP, just before the global financial crisis of 2008. \u201cThe 3 per cent deficit and 60 per cent debt targets under the FRBM no longer appear to be medium-term fiscal anchors. Instead, in its recent budget, the government signalled a desire to shift to a medium-term focus of putting debt on a downward trend,\u201d Fitch said.<\/p>\n
The agency has placed India along with Japan and Malaysia where it expects debt to GDP to fall between 2024 and 2026. However, it will remain well above the respective sovereign medians in 2026 in these cases. \u201cShocks that challenge the fiscal consolidation trend under our baseline could put downward pressure on the rating,\u201d it said.<\/p>\n