India: Task to strengthen public finances left to next government: Fitch

  • The deferral of fiscal consolidation roadmap has left the task of strengthening weak public finances to the next government after the 2019 general elections, Fitch Ratings said on 6 Feb 18.
  • The government has revised its 2018-19 fiscal deficit projections to 3.3% of GDP and for current fiscal to 3.5% of GDP, compared with original targets of 3% and 3.2%, respectively.
  • The postponement of consolidation in part reflects policies to support the economy, which was held back in 2017 by weak investment and disruptions from demonetisation and the introduction of the Goods and Services Tax (GST), Fitch said.
  • However, the budget target revisions are modest, and are balanced by positive reform momentum and a strong economic outlook.
  • New spending initiatives announced in the budget include measures to boost rural incomes, an ambitious health insurance scheme intended to cover about 500 million people, and funding for the construction and upgrading of medical colleges and hospitals.
  • This government’s initial fiscal plan, set out in 2014, aimed to reduce the deficit to 3% of GDP by FY18 – the level consistent with the Fiscal Responsibility and Budget Management (FRBM) Act of 2003. “It now does not expect to hit that target until 2020-21, beyond its current electoral term,” Fitch said.
  • Despite this slippage, the government stated in the budget that it plans to adopt a ceiling of 40% of GDP for central government debt, as recommended by the FRBM Committee in Jan 17, compared to an estimated 50% of GDP in 2017-18.
  • The budget decision to increase minimum support prices for agricultural goods to 1.5 times the cost of production is likely to lift rural incomes, but could also push up inflation and bring forward monetary tightening.

External Link : https://economictimes.indiatimes.com/news/economy/finance/task-to-strengthen-public-finances-left-to-next-government-fitch/articleshow/62801399.cms

6-Feb-2018


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