Taking India No Where
It’s a ‘no where’ budget was the terse comment on a TV channel by Lord Meghnad Desai, the Indian-born British economist and Labour politician, aptly describing India’s budget. Similar is the view of most experts who believe that this important fiscal path will take India no where...Simply put, there are no positives. But the fear is will this fiscal misadventure restrain and perhaps negate India going forward? The answer may be yes.
”India's budget for the fiscal year ending March 31, 2013, would be mildly negative for the unsolicited sovereign credit rating on India. While the finance minister announced various fiscal reforms, the timing of the implementation of key reform measures such as the Goods and Services Tax (GST), Direct Tax Codes (DTC), and the targeted direct subsidy disbursement remains uncertain. 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” says Standard & Poor's Ratings Services.
It 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% in 2012-2013, from 74.9% in 2011-2012. However, large government funding programs, with announced new market borrowing of Indian rupee (INR) 4.8 trillion, will put some pressure on the financial market. This could adversely affect economic recovery.
India's weak fiscal position and large debt burden are some of the most significant constraining factors on its sovereign credit rating.
With a general election likely in 2014, it believes that ‘the chances of India achieving a central government deficit target of 3.0% of GDP for fiscals 2013-2014 and 2014-2015 seem remote. We expect the deficit in the general government budget (including local governments) to remain high at about 8% in the coming fiscal year, compared with about 8.5% in the current fiscal year.’
Potential risk also surrounds the government's target divestment of INR300 billion in the next fiscal year. Volatility in the capital markets might lead to lower-than-expected proceeds from divestments, feels S&P. Simply put, it means that India could face tough times ahead.