Indias Budget presented on February 1 by Union Finance Minister Nirmala Sitharaman points to a loosening of fiscal policy to support the countrys ongoing economic recovery from the pandemic and will consequently lead to a rise in public debt.
The debt/GDP trajectory is core to our sovereign rating assessment, meaning higher deficits and a slower consolidation path will make India’s medium-term growth outlook take on a more critical role in our analysis, says Fitch Ratings.
India entered the pandemic with little fiscal headroom from a rating perspective. Its general government debt/GDP ratio stood at 72 per cent in 2019, against a median of 42 per cent for ‘BBB’ rated peers.
“We revised the Outlook on India’s ‘BBB-’ rating to Negative, from Stable, in June 2020, partly owing to our assumptions about the impact of the pandemic on its public finance metrics. The budget’s deficit projections for the fiscal years ending March 2022 (FY22) to FY26 are about 1pp a year above our previous estimates between, which could make it more challenging to put debt/GDP on a downward trajectory,” Fitch Ratings said.
“We now expect public debt/GDP to rise above 90 per cent of GDP over the next five years, based on the revised budget targets and with our other previous rating assumptions remaining unchanged. However, recent reforms and policy measures, including those announced in the budget, could also influence our growth expectations and, thus, our debt trajectory forecasts,” Fitch Ratings said.
Fitch’s latest economic outlook projected growth at 11 per cent in FY22 then at around 6.5 per cent a year through to FY26.