Mumbai: Most of the fiscal and revenue targets set in the Budget are achievable and it reaffirms the government intent of gradual fiscal consolidation apart from signalling continued commitment to broad-base the reform agenda with a greater focus now on widening the tax base, says the global rating agency Fitch.For latest news on Business, like us on Facebook and follow us on Twitter.
The Budget reaffirms fiscal consolidation even though the target for reducing fiscal deficit to 3 per cent has been pushed back by another year (second in four years), the agency said, but noted that the general goal of addressing relatively weak public finances over the medium-term is still in place.
"The decision to raise deficit target to 3.2 per cent of GDP, from 3 per cent, means slower near-term consolidation than was previously planned," Fitch Ratings director for sovereigns Thomas Rookmaaker said in a note.
"Most of the Budget assumptions are achievable. The Budget forecasts a nominal GDP growth of 11.8 per cent, and tax revenue growth of 12.7 per cent. The subsidy bill is set to be stable at around 1.6 per cent of GDP, leaving the bulk of consolidation to come from cuts in other expenditure like defence spending," he said.
He feels the government is focused more on bringing more of the large informal economy into the formal sector by widening tax base and hence the absence of details about labour reforms and the abolition of the FIPB.
"But a significant increase in tax compliance can happen only in the next few years, given the difficulties involved in achieving it. The fact that income tax still does not apply to the farm sector, which accounts for nearly 50 per cent of employment, will also limit the potential effectiveness of measures to raise income tax," he said.
On the highest-ever divestment target of Rs 72,500 crore, he said it looks optimistic, having missed this all these years. Also there is a risk that government will need to allocate more than 0.06 per cent of GDP to recapitalise banks.
On the Budget proposal to lower public debt, he said the government should follow new fiscal framework recommended by the FRBM panel that called for the general government debt be brought down to 60 per cent of GDP by 2023, from nearly 70 per cent of GDP in the outgoing year. If brought down to this level, it will take the debt closer to the median of 40.6 per cent for BBB rates sovereigns range (India has BBB-/stable), he said.
"This would imply general deficits, including other public entities like states of around 6.5 per cent of GDP, which is also much higher than the 'BBB' median," he said.
He believes that the 3.5 per cent fiscal deficit target for this year will be met, "but there is a small risk the final outcome will be higher due to the impact of note-ban."
But he did not say by how much.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)