Budget credit positive, but implementation is the key: Fitch

The rating agency stopped short of making any pronouncement on sovereign rating side

Global rating agency Fitch today cautiously reacted cautiously to Budget proposals saying they are broadly credit positive but that implementation will be the key, as it stopped short of making any pronouncement on sovereign rating side.

In a statement issued from Singapore, the agency's Asia-Pacific sovereigns group head Andrew Colquhoun said, "The overarching point of the Budget announcement is that the rhetoric and targets are credit constructive in many areas, including returning to 7 to 8% growth and achieving budget deficit reduction (of 4.1% this fiscal and 3.6% next). However, implementation will be key."

Colquhoun further said the agency is "surprised that Finance Minister Arun Jaitley has stuck with the outgoing government's fiscal consolidation path. But we are now unsure how this can be met without further revenue-strengthening or expenditure-saving measures"

The revenue measures announced actually have the net effect of reducing revenues by 0.1-0.2% of GDP as the Minister increased the income tax exemption limit to Rs 2.5 lakh from Rs 2 lakh and home loan interest deduction to Rs 2 lakh from Rs 1.5 lakh and increased by 50% the tax sops on investment to Rs 1.5 lakh under Section 80C, Fitch said.

All these measures will result in a revenue loss of Rs 22,300 crore to the government this fiscal, the Minister said, while indirect tax increases will fetch only under Rs 8,000 crore.

Despite this, he has pegged fiscal deficit at 4.1% and brought down tax generation to 15%. The only increase is the doubling of divestment target to Rs 63,400 crore.

"Fitch has a more cautious projection on divestment proceeds than the Budget. It remains to be seen how the government would react to a shortfall in tax or divestment revenues, if it occurred," Colquhoun said.