The Hindu Business Line : Mini-Budget signals good intentions: S&P

GLOBAL rating agency Standard & Poor's (S&P) said on Wednesday that the mini-Budget indicates a greater determination to curb fiscal deterioration. The statement, however, cautioned that the mini-Budget must be seen in the context of the anticipated general election as well as strong growth.

The Budget deficit for fiscal year (FY) 2003-04 is estimated to reach 4.8 per cent of GDP, from 5.4 per cent in FY 2002-03, but more importantly the deficit for FY 2004-05 is boldly projected at 4.4 per cent of GDP, said a statement from the rating service.

"It is a positive sign that the looming general election has not led to a significant loosening in fiscal policy. Despite some modest pre-election tax concessions, the outlook for reducing the deficit appears more upbeat than it has in recent years," stated S&P's Rating Services.

Analysts at Moody's, another global credit rating agency, however, termed India's targeted growth rate as "unrealistic," reported news agency Bloomberg. Growth doubled in the current fiscal after the best monsoon rain in five years. This surge, caused by a rebound from drought, may not be matched, said the Moody's analyst.

Both agencies expressed concerns over fiscal sustainability and Government deficit. S&P's credit ratings on India are constrained by the high public debt burden and fiscal inflexibility, with the consolidated general Government deficit at more than 9 per cent of GDP. The ratings on India could improve if the Government can press on with reforms. These include reversing the fiscal trajectory by implementing plans to reduce the deficit and accelerate structural reforms to sustain economic growth, said S&P.

Moody's concerns about fiscal sustainability would be alleviated only with determined and consistent implementation over the medium term, especially, but not limited to those times when growth is strong, according to a Moody's analyst. The trend according to the Budget does not assure fiscal consolidation, said the news agency report.

It may be recalled that two weeks ago, Moody's had raised India's foreign currency rating by one level to investment grade while keeping the long-term local currency debt rating unchanged at junk because of the scale of the budget deficit. "India's debt and debt servicing levels are too high for the authorities to grow complacent and overly dependent on painless growth as the solution," stated the analyst.

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