Summary:

Fitch Ratings stated that India's post-election budget supports the new administration's commitment to reducing the fiscal deficit for FY25 and FY26, despite coalition demands. The FY25 budget lowers the Centre's fiscal deficit target to 4.9% of GDP, down from 5.1% in February's interim budget and significantly below Fitch's forecast of 5.4%. Fitch noted that the focus on high public capital spending and recent progress toward budget deficit targets improves fiscal credibility. The FY24 deficit was 5.6% of GDP, lower than the initial 5.9% projection.

India's public financial metrics remain weak compared to 'BBB' category peers, with high fiscal deficit, interest-to-revenue, and debt ratios. Continued fiscal consolidation, which reduces the government debt ratio over time, could enhance India's credit profile and potentially lead to a rating upgrade. The budget emphasizes agricultural development, job creation, labor skill enhancement, and manufacturing. Proposed measures, such as lowering the corporate tax rate for foreign enterprises from 40% to 35% and revisiting customs tariffs, aim to boost industrial investment, though land and labor restrictions remain significant obstacles regulated at the state level.

Source: IBEF 

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