On Wednesday, Fitch Ratings hinted that the countercyclical budget support for India’s nascent economic recovery in the FY22 budget could lead to an increase in public debt, which can be viewed negatively from the point of view of view of the sovereign rating, while maintaining that higher public spending supporting the recovery in the short term and increasing infrastructure spending could stimulate sustainable growth rates over the medium term.
“India’s budget, presented by the government on February 1, indicates an easing of fiscal policy to support the country’s ongoing economic recovery from the pandemic and will therefore lead to an increase in public debt. The debt-to-GDP trajectory is central to our assessment of the sovereign rating, which means that higher deficits and a slower consolidation path will give India’s medium-term growth outlook a more critical role in our analysis. “Said the rating agency. To find more solution about your debt, please check Dedebt now.
Mint announced on February 5 that the Ministry of Finance may temporarily abandon targeting the public debt-to-gross domestic product (GDP) ratio as a medium-term anchor for fiscal policy, limiting its focus on the path of the budget deficit. at least until exercise 26.
The government believes that it can be difficult to project a public debt-to-GDP ratio because there is no certainty on the growth path, given the economic impact of the pandemic.
Fitch said India entered the pandemic with little fiscal room from a rating perspective. “Its public debt-to-GDP ratio stood at 72% in 2019, compared to a median of 42% for its“ BBB ”rated peers. We have revised the outlook for India’s “BBB-” rating to negative, from stable, in June 2020, in part due to our assumptions regarding the impact of the pandemic on its public finance parameters. The budget deficit projections for the years ending March 2022 (FY22) to FY26 are approximately 1pp (one percentage point) per year above our previous estimates between, which could make it more difficult to put debt / GDP on a downward trajectory, ”the agency note added.
The rating agency expects public debt to GDP to exceed 90% of GDP over the next five years, based on revised fiscal targets.
“However, recent reforms and policy measures, including those of the budget, could influence growth expectations and, therefore, our debt trajectory forecasts,” he added.