Fitch is encouraged by the government's plans to stick to its fiscal deficit reduction path that was outlined in Thirteenth Finance Commission.
The government's fiscal deficit target of 4.6 per cent of GDP in FY2012, compared to an estimate of 5.1 per cent of GDP in FY2011, will not be necessarily easy to meet given the government will not have the benefit of one-off revenue proceeds from 3G and Broadband Wireless Access auctions as it did in FY2011.
Nevertheless, Fitch holds the view that the government is unlikely to stray too far off track given the broad base of revenue and expenditures measures announced, however, there is scope for disappointment if real GDP growth underperforms the official forecast of 8.75-9.25 per cent in FY2012. Note Fitch is projecting 8.5 per cent FY2012.
The government's net market borrowing plans of 3.43 trillion rupees also look encouraging. Though it's not clear cut what type of impact it will have on a private sector spending as there are lot of other moving parts to consider, including monetary policy and overall capital flows.
The government's FY2012 Budget seem to strike an appropriating balance of dealing with inflation, particularly related to food security, social needs and promoting infrastructure investment, while maintaining its goal of fiscal consolidation. So overall, it's quite encouraging.
Today's budget announcement supports Fitch's current views of the Indian sovereign, which is a stable outlook on both the foreign currency and local-currency ratings at 'BBB-'.