Budget 2014: Jaitley's Fiscal Targets Hard to Achieve, Say Rating Agencies

Rating agencies said on Friday Finance Minister Arun Jaitley's assumption of containing fiscal deficit at 4.1 per cent of GDP is difficult to achieve given the poor outlook on the revenue front and absence of reduction in subsidies.

"The fiscal deficit target will be hard to achieve. The government is betting on a sharp increase in revenues in a slow growth year," rating agency Crisil said in a note on Friday.

Jaitley's fiscal arithmetic, it said, is "shaky", and the scope for fiscal slippage "remains high". The agency estimates fiscal deficit to touch 4.5 per cent this fiscal.

It also said Jaitley is betting big on indirect taxes and proceeds from divestment to bridge the tax revenue gaps, where he is expecting to raise Rs 58,400 crore in the remainder of the fiscal, but his Budget displays "little progress on subsidy reduction".

"The Budget lacks details on revenue and expenditure measures to lower the deficit, making it difficult to assess the likelihood that future deficit targets will be met," international rating agency Moody's said in a note.

It, however, acknowledged that narrowing the deficit will remove a key constraint in government finances and help the country's sovereign ratings.

Stating that it has been expecting only a slow and calibrated approach by the Narendra Modi government on the economic front, Moody's said it continues to have the stable outlook on the country at Baa3.

Domestic rating agency India Ratings also said even though the Budget adheres to the fiscal consolidation roadmap, the 4.1 per cent target is "slightly optimistic" and the present conditions point to a slippage on the front.

It can be noted that at least two of the three major international rating agencies (S&P and Fitch) had warned to cut the sovereign ratings to junk citing the sustained period of low growth and also the high fiscal deficit, which made Jaitley's predecessor P Chidambaram to undertake massive capital expenditure cuts and meet the targets in the past two fiscals.

Accordingly, the former FM ended both the fiscals at 4.9 per cent and 4.5 per cent in FY'13 and FY'14, respectively.

"The target of 4.1 per cent fiscal deficit is indeed daunting. Difficult, as it may appear, I have decided to accept this target as a challenge. One fails only when one stops trying," Jaitley had said in his budget speech.

The rating agencies said that the budget has made several attempts at reviving growth like pushing the foreign ownership limits in defence and insurance and improving the savings rate through changes in the tax structure.

Crisil said the divestment target of Rs 58,425 crore to be achieved in the next nine months, is higher than what has been cumulatively achieved over the last three years and advised to "front-load" the divestments and also suggested an early introduction of the GST.