Despite reforms, policy uncertainty to keep India's deficit high in 2012-2013
20 March 2012
India's budget for the fiscal year ending 31 March 2013, would be mildly negative for the unsolicited sovereign credit rating on India (BBB-/Stable/A-3), ratings agency Standard & Poor's Ratings Services said today.
While the finance minister announced various fiscal reforms, the timing of the implementation of key reform measures such as the goods and services tax (GST), direct tax codes (DTC), and the targeted direct subsidy disbursement remains uncertain.
In addition, India's deficit in the next fiscal year is likely to remain high, and uncertainty surrounds the path to subsidy consolidation and to lowering fiscal vulnerability to volatile commodity prices.
S&P said, "We believe India's nominal GDP growth will most probably exceed the ratio of general government deficits to GDP in the coming fiscal year. Based on our calculations, we expect India's debt-to-GDP ratio to fall to 74.7 per cent in 2012-2013, from 74.9 per cent in 2011-2012."
It added that the large government funding programs, with announced new market borrowing of Rs4.8 trillion (Rs480,000 crore), would put some pressure on the financial market. This could adversely affect economic recovery.
"India's weak fiscal position and large debt burden are some of the most significant constraining factors on our sovereign credit rating," the S&P report warned.