New Delhi: Ahead of BJP-led NDA government presenting the final budget of its tenure, ‘Fitch Ratings’ warned Thursday of a second consecutive year of fiscal slippage in the event of acting Finance Minister Piyush Goyal resorting to populist spending to win over lost vote base.
The interim budget to be presented Friday could give some indication of the government’s commitment to fiscal consolidation, which is one of the main sensitivities in the sovereign ratings, Fitch said in its report.
“Pressure for new expenditure to attract votes, particularly among rural and small-business owner voters, has increased as polls have shown the ruling Bharatiya Janata Party (BJP) is becoming less assured of victory in the general elections.
“The BJP has reportedly lost votes in some recent state elections due to rural distress and public concerns over job creation. Targetted cash programmes appear the most likely form of support, as they would avoid downside risks of alternatives, such as the farm loan waivers that undermined the loan repayment culture in the past,” the organisation said.
Populist spending, it said, would aggravate fiscal pressures, which are already building due to revenue shortfalls.
“Higher pre-election spending could risk a second consecutive year of fiscal slippage relative to the government’s targets and would further delay plans to reduce the high general government fiscal deficit and debt burden,” it pointed out.
Fitch said longer-term trends are more important to the sovereign rating profile. “We believe the central government may still be able to meet its fiscal deficit target of 3.3 per cent of GDP for FY19, which would help support its fiscal credibility, although this may be achieved by deferring capital expenditure and postponing bill payments until after March,” Fitch informed.
Revenue from the new GST is well below target, Fitch said citing it as an reason for revenue falling short of the target so far in the current fiscal year that ends March 31, 2019.
PTI