TEXT - Fitch: India commitments encouraging, delivery, growth still key

Mon Feb 4, 2013 7:37pm IST

Related Topics

Public commitments and policy announcements by the Indian government so far in 2013 are encouraging signals that the authorities want to maintain the momentum towards fiscal consolidation and structural reform generated since last summer, Fitch Ratings says. However, policy execution and the impact on trend growth will remain key to our ratings assessment.

The authorities appear committed to keeping the fiscal deficit in check. Finance Minister P Chidambaram said last week that this year's and next year's deficit targets (5.3% and 4.8% of GDP respectively) are "red lines" that he will not breach.

In September and October last year, the government adjusted fuel subsidies and outlined a five-year roadmap aimed at reducing the central government fiscal deficit to 3% of GDP by 2016-2017. It also announced that greater foreign investment participation will be allowed in some industries, including power and retail.

Since then, the authorities have also indicated they may be willing to structurally improve the fiscal position, such as raising or broadening taxes or cutting expenditures (including further subsidy reductions). Already this year, the government has said it will let India's oil marketing companies make small increases in diesel prices. It has also increased rail fares and raised the limit on foreign investment in rupee bonds. Furthermore, recent data shows that the authorities have made some progress in capping the FY13 budget at 5.3% of GDP as a small surplus was recorded in December.

Nevertheless, as we have previously said, India's patchy performance on policy implementation, and the approach of elections in 2014 could impede fiscal consolidation, suggesting political and implementation risk remain significant. This is reflected in the Negative Outlook on India's 'BBB-' rating.

The FY14 Union budget, due at end-February, will be an important gauge of the government's commitment to fiscal consolidation and reform in general. However, it is not the sole rating driver. A credible medium-term fiscal consolidation plan remains key.

We also need to observe the impact of reform and more broadly see how India's macroeconomic outlook develops over time. When we revised the Outlook to Negative from Stable in June last year, we cited the risks to growth potential without faster structural reform.

FILED UNDER:
Photo

After wave of QE, onus shifts to leaders to boost economy

DAVOS, Switzerland - Central banks have done their best to rescue the world economy by printing money and politicians must now act fast to enact structural reforms and pro-investment policies to boost growth, central bankers said on Saturday.

Bureaucrat Shunted

Reuters Showcase

Facebook Earnings

Facebook Earnings

Facebook tops Wall Street revenue target in 4th quarter.  Full Article 

Governance Reforms

Governance Reforms

IMF sets June deadline for progress on governance reforms.  Full Article 

Tackling Deficit

Tackling Deficit

Government makes push to boost revenue as deficit deadline nears.  Full Article 

Fed's Stance

Fed's Stance

Fed upbeat on U.S. economy, cites strong job gains.  Full Article 

Tumultuous Run

Tumultuous Run

McDonald's CEO Don Thompson leaving.  Full Article 

Samsung Results

Samsung Results

Samsung Elec's smartphone primacy under threat from Apple after weak Q4.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage