Fitch Ratings on February 3 said India is expected to clock a GDP growth of 5.6 percent in the next financial year, lower than the projection made by the government’s Economic Survey, as Budget 2020 has not “materially altered” its view on the country’s growth outlook.
The Economic Survey, released a day before Finance Minister Nirmala Sitharaman presented Union Budget for 2020-21 on February 1, had projected a GDP growth of 6-6.5 percent, up from 5 percent estimate for 2019-20.
“The fiscal slippage announced in the government’s new FY21 budget is modest relative to its previous targets, and is consistent with our expectations when we affirmed India’s ‘BBB-‘ rating with a stable outlook last December, given slowing growth momentum,” said Thomas Rookmaaker, Director and Primary Sovereign Analyst for India, Fitch Ratings.
Sitharaman’s Budget missed deficit target for the third year in a row, pushing shortfall to 3.8 percent of GDP in the current fiscal as compared to 3.3 percent previously planned. The fiscal deficit target for the coming fiscal year starting April 1, has been fixed at 3.5 percent.
“The new budget targets imply some further postponement of fiscal consolidation, in line with the government’s ambivalent approach to consolidation of the past few years when deficit outturns have typically exceeded budget targets,” Fitch said projecting general government debt to remain close to 70 percent of GDP through FY22.
India’s high public debt relative to peers is a rating weakness, it said. “The budget does not materially alter our view on India’s economic growth outlook, which we forecast to pick up to 5.6 pc in FY21 from 4.6 pc.
The report further noted that Budget contains some measures which may support GDP growth in the medium-term, including reduced individual income tax rates, some easing of restrictions on foreign portfolio inflows, continued focus on public infrastructure spending, and schemes of which the details remain to be announced to encourage manufacturing in the electronics and textiles sectors.
The assumptions in the budget, including nominal growth of 10 pc and a rise in revenues by 9.2 pc were “broadly credible” although there were risks to the downside.
The Govt had in Sept last year cut the corporate tax rate to 22 pc from current 30 pc and in the Budget announced a reduction in personal I-T rates for those who were willing to give away present exemptions and rebates.