India's Fiscal Discipline Amidst Capex Focus

India aims to reduce its budget deficit despite increased public capex and coalition demands. Fitch Ratings notes that India has consistently met its budget targets, boosting fiscal credibility. India's recent use of RBI dividends to lower deficit targets and affirmed 'BBB-' rating with a stable outlook reflect fiscal commitment.

India remains staunch in its commitment to curbing the budget deficit over the medium term, despite its focus on increased public capital expenditure and coalition government demands, as reported by Fitch Ratings on Tuesday.

The report highlighted that India has achieved or outperformed its budget deficit targets in recent years, significantly enhancing its fiscal credibility.

Fitch pointed out India's strategy of using Reserve Bank of India (RBI) dividends to lower its fiscal deficit target for the fiscal year ending March 2025, indicating a strong preference for fiscal consolidation.

However, India's deficit, interest-to-revenue, and debt ratios remain elevated compared to 'BBB' category sovereign peers, Fitch noted.

''We believe the government remains committed to reducing the budget deficit over the medium term, even amid the coalition's demands and a focus on economic growth through higher public capex,'' the rating agency stated.

In July's full Budget, the government reduced the fiscal deficit target to 4.9% from the 5.1% initially estimated in February's interim Budget.

In May, the RBI board approved a Rs 2.11 lakh crore dividend for the government for the 2023-24 fiscal year.

Last month, Fitch Ratings affirmed India's sovereign rating at 'BBB-' with a stable outlook, citing a strong medium-term growth outlook and solid external financing position.

(With inputs from agencies.)