No change in India's credit profile at present due to reduction in fiscal deficit, Fitch said after the budget

Regarding India's budget, Fitch Ratings has voiced its opinion. The rating agency stated on Friday that India's sovereign credit profile remains unchanged even with a slight decrease in the fiscal deficit. The agency states that the government's focus on reducing the deficit will contribute to the medium-term stabilisation of the debt-to-GDP ratio.

In his post-Budget remarks, Fitch Ratings Director of Sovereign Ratings, Jeremy Zook, predicted that over the next five years, the Indian government's debt-to-GDP ratio will hover around 80% of GDP. This is predicated on both a steady nominal growth rate of roughly 10.5% of GDP and an ongoing decrease in the nominal deficit.

In the interim Budget 2024-25 presented in Parliament on Thursday, the government reduced its current year fiscal deficit to 5.8 per cent from 5.9 per cent earlier. Fiscal deficit, the difference between the government's revenue and expenditure, is projected to decline to 5.1 per cent in 2024-25 and 4.5 per cent by 2025-26. Fitch said these figures reflect the desire to keep the fiscal deficit low in an election year.
   
"The budget presented on Thursday was broadly in line with our expectations, although the deficit reduction was a little sharper than when we affirmed India's 'BBB-' rating with a stable outlook in January," Jeremy Zook said. “Momentum is visible.”

"This has not brought about any significant change in the sovereign credit profile," he said. India's fiscal deficit and government debt ratio are higher than other benchmarks, but the government's emphasis on deficit reduction is expected to stabilize the debt ratio in the medium term. He said that this budget signals a clear commitment of the present government towards fiscal consolidation and its capital expenditure agenda.

Before this, the government projected that the fiscal deficit would drop to 5.4% of GDP in the following fiscal year, which would begin on April 1, 2024. In the interim budget, the government has raised its estimate to 5.1% of GDP, improving it.

India has the lowest investment grade rating from all three global rating agencies, Fitch, S&P and Moody's. Investors use the ratings as a gauge of a nation's creditworthiness and the efficiency of the companies' lending. According to Moody's Investors Service, the government's commitment to fiscal consolidation targets set against the backdrop of robust economic growth is highlighted in the interim Budget 2024–25, which was released on Thursday. Christian de Guzman, senior vice president at Moody's Investors Service, had said the government has shown fiscal restraint by not making large transfers or increasing discretionary spending ahead of general elections this year.