Budget evokes mixed response from global rating agencies

Budget has prioritised growth over fiscal consolidation but it may not have any impact on the country's sovereign rating, says Moody's

The Budget has received a mixed response from global rating agencies with the US-based S&P saying that the annual financial document seeks to keep the fiscal deficit in check despite subdued revenue growth.

"India's 2015-16 Budget highlights the government's commitment to keep the fiscal deficit low despite lower-than-expected revenue growth," Standard & Poor's said.

Another rating agency Moody's said the Budget has prioritised growth over fiscal consolidation but it may not have any impact on the country's sovereign rating.

Fitch, however, said that the Budget has both positive and negative elements and that India's medium-term fiscal consolidation strategy is less inspiring.

Rolling out a new fiscal consolidation roadmap, Finance Minister Arun Jaitley had said in the Budget that fiscal deficit would be brought down to 3.9 per cent of GDP in 2015-16, and then further to 3.6 per cent and finally to 3 per cent by 2016-17 and 2017-18, respectively.

The Finance Minister had said that the government would achieve the 3 per cent fiscal deficit target by 2017-18 as against 2016-17 as it intends to increase public investment to boost growth.

S&P said this commitment moderates the drag on sovereign credit support posed by the relatively heavy general government debt burden in India.

Besides, Moody's said the credit impact of the Budget will depend on whether its implementation facilitates growth that is primarily driven by government expenditure or growth that sets the stage for higher savings, investment, productivity and profitability.

"India's Budget, which prioritises growth over deficit reduction, is unlikely to materially change India's sovereign credit profile, which is supported by the economy's robust growth but constrained by the government's weak fiscal metrics," Moody's said.

It said the Budget contains several measures that, if effectively implemented, will accelerate India's GDP growth.

Jaitley, in his Budget speech, had said that growth in 2015-16 is expected to rise to 8-8.5 per cent, from 7.4 per cent in current fiscal.