The Government of India is not worried about the threat of a downgrade from Fitch, PTI quoted Economic Affairs Secretary Arvind Mayaram as saying. India will be able to restrict its fiscal deficit to 5.3 per cent of the gross domestic product (GDP), the item noted, citing Mr Mayaram.
Early this morning, global rating agency Fitch said India may face a downgrade in 12-24 months, adding that the government may miss its fiscal deficit target.
The fiscal deficit - the gap between expenditure and revenue collection - was Rs 4.13 lakh crore during the first eight months of the current fiscal year, according to Controller General of Accounts data released end-December.
This is slightly better than the fiscal deficit position last year, when it was 85.6 per cent of the Budget target. The improvement is mainly on account of some tightening on the expenditure front.
Net tax receipts during the April-November period stood at Rs 3.7 lakh crore, while total expenditure was about Rs 8.67 lakh crore.
For the full fiscal ending March 2013, the government had budgeted the fiscal deficit at Rs 5.14 lakh crore, or 5.1 per cent of GDP, but raised the target to 5.3 per cent of GDP last month.
The government has already imposed measures like rationalisation of expenditure and optimisation of available resources to improve the fiscal deficit condition.
Terming India's macroeconomic trends "disappointing", Fitch said it is awaiting the final fiscal numbers for the current year and that the Union Budget for the fiscal year 2013-14 will be important for ratings.
Although growth may have bottomed out, trend growth may have slipped further due to structural bottlenecks, it said, adding that a fall of the trend growth to between 6 and 7 per cent would be a ratings negative.
The rating agency said the high current account deficit is a concern and the ability to fund the deficit is crucial.
Current account deficit, which represents the difference between exports and imports after considering cash remittances and payment, widened to a record high of 5.4 per cent of GDP, or $22.3 billion (Rs 123,254.64 crore), in the July-September quarter as export growth slowed more sharply than imports, with a similar gap expected in the December quarter likely to prolong weakness in the rupee.
The worse-than-expected deficit also adds pressure on the government as it tries to push through long-delayed reforms. A sharp rise in gold imports, a hefty oil bill and falling exports due to the global slowdown have kept India's current account deficit at persistently high levels.
Today's warning by Ftich follows its statement in early December that India's sovereign rating could be cut if the government loosened fiscal policy in the run-up to general elections due 2014 or sees a prolonged slowdown in economic growth.
"Policy slippage and/or mounting evidence of a structural decline in the trend growth rate, such as protracted relatively weak economic data, could cause the ratings to be downgraded," its report said.
Both Fitch and Standard & Poor's earlier this year cut their ratings outlooks for Asia's third-largest economy to negative, putting the country in danger of being the first of the BRICS grouping of fast-growing economies to be downgraded to junk status.
The Indian economy extended its long slump in the September quarter, growing only 5.3 per cent, below the 5.5 per cent expansion seen in the three months to June, keeping it on track for its worst year in a decade.
"The growth rate for the first half of the current financial year works out to 5.4 per cent as against 7.3 per cent in the first half of 2011-12. Overall, the growth rate is below our expectations," the Finance Ministry said in a statement.
The economy is battling weak consumer demand in overseas and domestic markets. Industrial output has contracted in four out of the last six months.
Worryingly for hopes of a quick rebound, capital goods production-a gauge for investment in the economy-has expanded just once in the last 13 months.
The government now aims to achieve 5.8 per cent growth for the full year. The Reserve Bank of India, too, sharply lowered this fiscal's economic growth projection to 5.8 per cent, from 6.5 per cent earlier.
With inputs from Reuters and PTI
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