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S&P’s Senior Director (Asia-Pacific Sovereign Ratings) Kim Eng Tan said: “In terms of the structural effects of the Budget, we see the improvement has been not as great as it could have been... We don’t see the rating going up in the next year or so.”
Fitch Ratings said while the Budget shows the government’s continued orientation on implementation of structural reforms, it could have been more ambitious on the fiscal front, especially given India’s high public debt burden.
“The medium-term fiscal consolidation strategy is less aspiring than in the past, which is negative from a sovereign rating perspective,” Fitch said.
Rolling out a new fiscal consolidation road map, Finance Minister Arun Jaitley had said in the Budget that fiscal deficit would be brought down to 3.9 per cent of gross domestic product in 2015-16, and then further to 3.6 per cent and finally to three per cent by 2016-17 and 2017-18, respectively.
The finance minister had said the government would achieve the three per cent fiscal deficit target by 2017-18 as against 2016-17 as it intended to increase public investment to boost growth. Moody’s said the Budget had prioritised growth over fiscal consolidation but it may not have any impact on the country’s sovereign rating.
"The dilution of an already modest deficit reduction plan underscores its view that India's structural constraints, such as a low tax revenue base and rigidity in expenditures, make fiscal consolidation difficult...," Moody's said.
The Budget prioritises growth over fiscal consolidation, Moody's said, adding that it was "unlikely to materially change" a rating constrained by "weak fiscal metrics".