Last week, Bharat’s interim budget was presented, outlining a slightly accelerated pace of financial consolidation for the next two fiscal years. Fitch Ratings, a renowned global credit rating agency, noted that the budget reinforced Bharat’s commitments to boosting capital investment, aligning with their previous assumptions made in January when they affirmed Bharat’s credit rating at ‘BBB-‘ with a ‘Stable’ outlook.
Fiscal Targets and Outlook: The targets set in the budget are consistent with Fitch’s expectations and are anticipated to have minimal impact on Bharat’s credit profile. The modest adjustments in deficit targets for the fiscal years ending in March 2024 and 2025 indicate reduced near-term risks to Bharat’s fiscal trajectory, showcasing the government’s dedication to its fiscal consolidation plans. The interim nature of the budget, with elections looming in April-May 2024, suggests that more detailed fiscal plans will follow once the new government assumes office.
Deficit Reduction Measures: Despite the interim nature of the budget, the government announced a marginal reduction in the fiscal deficit target for the fiscal year ending March 2024, from 5.9% to 5.8% of GDP. This adjustment signals a lowered risk of fiscal setbacks due to pre-election spending surges. Furthermore, the deficit target of 5.1% of GDP for FY25 sets India on track to achieve its medium-term goal of narrowing the deficit to 4.5% of GDP by FY26.
Focus on Capital Expenditure: The budget emphasizes continued investment in capital expenditure, with an 11% increase in spending. This focus on infrastructure development is expected to support India’s growth outlook, with real GDP growth projected at 6.5% in 2024-25. The emphasis on capital expenditure is seen as a crucial driver for reducing infrastructure bottlenecks and enhancing India’s medium-term growth potential.
Challenges Ahead: While the government has a track record of meeting fiscal targets, Fitch’s latest forecast suggests that achieving the deficit target of 5.4% of GDP in 2024-25 may be challenging. Additionally, meeting the deficit target of below 4.5% of GDP by FY26, as outlined in the budget, poses further challenges.
In summary, Bharat’s interim budget reflects a commitment to fiscal stability and growth-oriented policies, with a focus on capital investment. While the targets set in the budget align with Fitch’s expectations, challenges lie ahead in achieving these targets amidst evolving economic conditions. The upcoming elections and subsequent fiscal plans will provide further clarity on Bharat’s path towards fiscal consolidation and economic growth.
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