India budget unlikely to impact credit rating

MUMBAI: India's new federal budget is unlikely to have an impact on the country's sovereign credit given the absence of meaningful fiscal reform, credit-rating firms said on Monday, with Standard & Poor's ruling out a rating upgrade for at least a year.

The comments come after Finance Minister Arun Jaitley on Saturday announced a budget for the year through March 2016 prioritising economic growth over reform, which is likely to slow the pace of narrowing a fiscal deficit.

Jaitley set next fiscal year's deficit target at 3.9 percent of gross domestic product (GDP) - higher than analyst estimates - and said the deficit is likely to fall to 3 percent of GDP in 2017/18, one year later than expectations.

Standard & Poor's Ratings Services (S&P) said the budget highlighted a commitment to keep the deficit low, but lacked structural reform.

S&P and major peers Moody's Investors Service and Fitch Ratings rate Indian credit at the lowest investment grade with a "Stable" outlook.

"In terms of the structural effects of the budget, we see the improvement has been not as great as it could have been," said Kim Eng Tan, S&P senior director for Asia-Pacific sovereign ratings, in a conference call.

"We don't see the rating going up in the next year or so."

Moody's said the budget was "unlikely to materially change" a rating constrained by "weak fiscal metrics", though it would be supported by the focus on growth.

The views correspond with those of analysts who lauded the budget for seeking to spark an investment-led boom but lamented the lack of structural reform, with the government leaving major welfare schemes untouched and cutting fuel subsidies only because of a drop in international oil prices.

Fitch said the government's medium-term fiscal consolidation strategy was "less aspiring than in the past," terming it negative for India's credit rating.

"While the budget shows this government's continued orientation on implementation of structural reforms, it could have been more ambitious on the fiscal front, especially given India's high public debt burden," said Thomas Rookmaaker, director at Fitch's Asia-Pacific sovereigns group.