Thu, 23 Mar 2023

New Delhi [India], February 2 (ANI): The government's continued focus on capital investment will give a boost to India's growth, said Fitch Ratings, a day after the finance minister presented the annual Budget for 2023-24.

"The government's continued emphasis on ramping up capex spending should provide a fillip to both near- and medium-term growth," Jeremy Zook, Director and Primary Sovereign analyst for India, Fitch Ratings, said.

"We believe India is well-placed to sustain higher rates of growth in the medium-term than many of its peers, with the capex drive helping to underpin this view," Zook added.

Capital investment outlay for 2023-24 is being increased steeply for the third year in a row by 33 per cent to Rs 10 lakh crore -- which would be 3.3 per cent of GDP.

"This will be almost three times the outlay in 2019-20," finance minister Sitharaman said in her Budget speech on Wednesday.

This increase in recent years, she said, is central to the government's efforts to enhance growth potential and job creation, crowd-in private investments, and provide a cushion against global headwinds.

"This budget sought to maintain a balance of sustaining a growth-oriented focus through a further increase in capex spending, while maintaining an eye toward deficit reduction. The government aims for modest fiscal consolidation, while accommodating a higher capex spend and changes to income tax slabs, largely by substantially reducing subsidies in the coming year," Fitch Ratings said.

India pegged the fiscal deficit target for 2023-24 at 5.9 per cent of gross domestic product (GDP), and it intends to bring it below 4.5 per cent by the financial year 2025-26.

Fitch Ratings, however, cautioned that given the "still uncertain outlook for the global economy and commodity prices", there is potential downside risk to the deficit target before the next general elections, in particular in the event that a shock such as another commodity price spike leads to pressures for subsidy spending.

"We still believe it will likely be challenging for the government to achieve its 4.5% of GDP deficit target by FY26, as achieving this target implies an additional 0.7% of GDP consolidation in each of the subsequent two fiscal years. Nevertheless, the commitment to reducing the fiscal deficit is a positive signal for debt sustainability," Zook noted. (ANI)

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