India on Wednesday coaxed Fitch to upgrade its sovereign rating — unchanged for almost 12 years — saying that structural reforms and stabilisation of the new GST regime have helped the country recapture the fastest growing economy tag and the Government will stick to its revised targets for lowering Budget deficit.
India wants Fitch Ratings to follow rival Moody’s Investors Service, which in November gave the country its first sovereign rating upgrade since 2004. Fitch had last upgraded India's sovereign rating from BB+ to BBB- with stable outlook on August 1, 2006 and is due for an annual review in a couple of months.
Top Finance Ministry officials led by Economic Affairs Secretary Subhas Chandra Garg, Chief Economic Advisor Arvind Subramanian and Principal Economic Advisor Sanjeev Sanyal laid bare the Government's reforms roadmap when Fitch Director, Sovereign Ratings, Thomas Rookmaaker and other officials met them here, sources said.
They are understood to have explained that the slippage in fiscal or budget deficit target for the current fiscal was a mere arithmetic slippage caused mostly due to just 11-months of Goods and Services Tax (GST) revenues accruing to the government instead of full 12 months.
In the Budget for 2018-19 presented on February 1, Finance Minister Arun Jaitley revised the fiscal deficit target for current fiscal year ending on March 31 to 3.5 per cent of GDP from 3.2 per cent previous target. For the next fiscal (2018-19), he projected a fiscal deficit of 3.3 per cent of GDP as opposed to 3 per cent previously announced.
During the discussions, the government is understood to have said that it will follow the fiscal consolidation roadmap and will lower the fiscal deficit to 3 per cent of GDP by 2020-21.
Sources said the Finance Ministry told Fitch officials that it is “following the path of fiscal prudence and contained fiscal deficit at 3.5 per cent of GDP this year despite getting 11-month revenue under GST”.
They said the ministry officials also informed Fitch that they “can't take chance with fiscal prudence because that affects inflation. Hence we should go by fiscal discipline”.
The government will introduce amendments to the FRBM Act in the ongoing Budget Session of Parliament, specifying the consolidation roadmap.
As per this roadmap, the fiscal deficit will be lowered to 3.3 per cent in the next fiscal starting April 1, to 3.1 per cent in 2019-20 and 3 per cent by 2020-21.
The international rating agency also raised queries on GST and the recent fraud at Punjab National Bank.
Sources said the ministry told Fitch that GST has more or less stabilised and after e-way bill and invoice matching starts, there will be a pick up in revenue collection in next 7-8 months.
On the Rs 12,600 crore fraud at Punjab National Bank, the ministry said that investigation is on and action would be taken in the case once the probe is over.