India must strengthen manufacturing to create jobs, Fitch analyst says

MUMBAI: India needs to strengthen its manufacturing sector to create jobs in the economy and facilitate its medium-term growth prospects, an analyst at Fitch Ratings said on Tuesday following the announcement of the country’s annual budget.

“Developing a strong manufacturing sector will likely be important to improving the labor market and purchasing power of households for a stronger medium-term growth trajectory,” Jeremy Zook, director - Asia sovereign ratings, said in an interview.

During Tuesday’s annual budget, India’s government announced plans to spend $24 billion to create jobs over the next five years and $32 billion on rural development this year alone.

“In terms of the budget, we did not see any significant changes around land and labour market reforms that are quite critical to supporting the manufacturing sector,” Zook said.

Analysts had blamed distress in rural areas and a weak job market for a poor poll showing that cost Prime Minister Modi’s Bharatiya Janata Party (BJP) its absolute majority in a general election last month.

The government will continue to work with states on land and labour reforms, Zook said. However, coalition politics will make the passage of such reforms challenging, he warned.

The government’s lowering of the deficit target to 4.9% from 5.1% of gross domestic product is a clear signal of its commitment to deficit reduction and looks relatively achievable, Zook said.

It will be a significant priority for the government to achieve its target of reducing the fiscal deficit to 4.5% of GDP by next fiscal year, he added.

Still, public finance metrics remain a weakness in India’s credit profile relative to its rating peers, Zook said, adding that fiscal deficit, interest-to-revenue and debt ratios are all at elevated levels compared to those rating peers.

“Sustained fiscal consolidation that helps to support a downward trajectory in the government debt ratio over the medium term would, in our view, be supportive of India’s credit profile,” Zook added.