New Delhi: The Centre’s fiscal deficit may increase by 1% over the interim budget projections to reach 6.5% of GDP due to possible stimulus measures in the full budget to be presented next month, S&P said.
“We think there is a possibility that India’s fiscal deficits would increase by 1 percentage point of GDP, from the level expected by the interim budget,” Standard and Poor’s sovereign rating director TK Ogawa said.
He attributed this to the finance minister Pranab Mukherjee’s statement in the interim budget that the next government will have further stimulus measures, which could be 0.5-1% of the size of the GDP.
Earlier in February this year, S&P warned that India’s ratings could be downgraded to junk grade if its fiscal deficit widens significantly.
The rating agency said that the single largest negative factor to affect the sovereign ratings on India is the large size of fiscal deficit of the government and S&P would pay attention to the contents of the full budget.
Ogawa further said that it is also important whether and at which pace the government will plan the divestment of the state-owned companies.
“However other factors such as the pace of the recovery of the economy, future inflation rate and the monetary policy of the RBI are also important factors (in reviewing the rating),“ he added.
In the interim Budget for 2009-10, the government projected the fiscal deficit to be at 5.5% of GDP.
Finance minister Pranab Mukherjee would present the budget on 6 July and may revise the targets of fiscal deficit for 2009-10.
In 2008-09, fiscal deficit touched 6.2% against the revised projections of 6%, due to three stimulus packages to spur the slowing down economy, which increased the government’s expenditure and lowered revenues.
Ogawa said various stimulus measures taken by the government have mitigated the strong downward pressure on the economic activities of the country to some extent.
“However it is difficult to tell the level of the impact and effectiveness of the stimulus measures of the government on India’s economy,” Ogawa added.
This is because, he said, as the current economic condition of the country is the result of many factors combined and extracting the impact of certain policy measures are very difficult.
“It would also be too early to talk about the implication of the stimulus measures on the economy,” Ogawa added.
Indian economy grew by 6.7% during 2008-09, much more than what many experts had predicted.