New Delhi: India’s budget demonstrates the ongoing commitment to maintaining macro stability through a gradual path of government debt reduction balanced against a still-robust capex program to enhance growth prospects, Fitch Ratings said on Monday, February 2.
While the budget did not flag specific large-scale reform announcements, Fitch said it expects more reforms to be forthcoming, particularly on the deregulation agenda.
Strong GDP growth is driving positive momentum in several of India’s sovereign credit metrics and if sustained, could improve the credit profile over time, even as lingering fiscal challenges remain, it said.
Building on recent reform momentum should help accelerate private investment and give greater upside and resilience to India’s potential growth, Fitch added.
It said fiscal consolidation is set to be very modest with fiscal deficit target at 4.3 per cent of GDP in FY27, just a touch below 4.4 per cent in FY26.
“The slowing pace of consolidation is in line with our view that further progress on deficit reduction is becoming more difficult without compromising more on GDP growth,” Fitch said.
The government opted to keep capex spending relatively stable at 3.1 per cent of FY27 GDP rather than pursue a greater degree of consolidation. This likely reflects an effort to offset lagging private investment.
“India’s budget demonstrates the ongoing commitment to maintaining macro stability through a gradual path of government debt reduction balanced against a still-robust capex program to enhance growth prospects,” Fitch Ratings Director and Primary Sovereign Analyst Jeremy Zook said in a note.
Fitch forecasts FY27 growth at 6.4 per cent. The continued emphasis on capex spending should be supportive of both near and medium-term prospects.
“A lengthening record of fiscal credibility should help strengthen India’s credit profile, particularly as it has come amid greater fiscal transparency and improved spending quality. Although the overall fiscal deficit is still higher than pre-pandemic levels this reflects stronger capex spending, as the revenue deficit is narrower than pre-pandemic levels- even including previously off-budget spending,” it said.
Still, general government deficits, debt and interest payments all remain elevated compared to peers and are only declining gradually, Fitch added.
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