MUMBAI (Reuters) - Fitch Ratings called India’s budget “constructive” for its sovereign rating, but said that implementation will be key and noted it was unsure how the fiscal deficit target of 4.1 percent could be achieved without revenue increases or spending cuts.
Finance Minister Arun Jaitley said on Thursday the government would stick to the fiscal deficit target of 4.1 percent of gross domestic product (GDP) set by the previous government for the year ending March 2015.
“The overarching point of the Indian government’s budget announcement is that the rhetoric and targets are credit constructive in many areas,” Andrew Colquhoun, Head of Asia-Pacific Sovereigns Group at Fitch said in an e-mailed comment.
“However, implementation will be key.”Colquhoun also expressed surprise the government would stick to a 4.1 percent fiscal deficit target, noting it estimated the measures announced on Thursday would actually reduce revenues by a net 0.1 percent to 0.2 percent of GDP.
“The agency (Fitch) is currently unsure how this (fiscal deficit) can be met without further revenue-strengthening or expenditure-saving measures,” Colquhoun wrote.
”Fitch has a more cautious projection on divestment proceeds than the budget. It remains to be seen how the government would react to a shortfall in tax or divestment revenues, if it occurred.
Fitch holds “BBB-minus” rating with a “stable” outlook for India.
Reporting by Neha Dasgupta; Editing by Rafael Nam