Standard & Poor's Ratings Services is not happy with Pranab Mukherjee's fiscal consolidation plan. On Friday, the credit rating agency said, "India's budget for the fiscal year ending March 31, 2013, would be mildly negative for the unsolicited sovereign credit rating on India (BBB-/Stable/A-3)."
Though the finance minister had announced various fiscal measures to tackle the deficit, there was no clear path on when the direct tax code or goods and service tax could come into effect. There was no clarity even on the exact measures to contain subsidy disbursal which would be crucial to bring down subsidies.
"In addition, India's deficit in the next fiscal year is likely to remain high, and uncertainty surrounds the path to subsidy consolidation and to lowering fiscal vulnerability to volatile commodity prices," the note said.
Basically crude oil prices are still high and the finance minister himself said the prices could be around $115 per barrel. High commodity prices will keep fuel subsidies high and unless there is a clear roadmap for curbing expenditure, fiscal deficit numbers will keep bothering the economy.
S&P believes India's nominal GDP growth will most probably exceed the ratio of general government deficits to GDP in the coming fiscal year. "Based on our calculations, we expect India's debt-to-GDP ratio to fall to 74.7 percent in 2012-2013, from 74.9 percent in 2011-2012," it said in a note.
According to the budget, India's fiscal deficit will be 5.1 percent of GDP in fiscal 2012-2013, compared with 5.9 percent of GDP in the current fiscal year. Both metrics fall short of the 13th financial commission's fiscal consolidation targets of 4.2 percent of GDP in the coming fiscal year and 4.8% of GDP in the current fiscal year. The ratios are also lower than the government's targets in its five-year plan of 4.1 percent in fiscal 2012-2013 and 4.6 percent in fiscal 2011-2012.
S&P adds that government's fiscal deficit targets seem unbelievable given the general elections in 2014. Clubbing the number along with that of the states, S&P says, the budget deficit could be 8 percent in the coming fiscal year, compared with about 8.5 percent in the current fiscal year.