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Government unhappy with Fitch's new outlook

Asit Mishra & Siddharth Zarabi in New Delhi | July 17, 2008 01:26 IST

Officials in the finance ministry are not happy with credit rating agency Fitch's revision of India's local currency outlook to negative from stable.

Officials say Fitch's conclusion that the central government's fiscal deficit will rise to 4.5 per cent of gross domestic product in 2008-09, as against 2.8 per cent in the previous fiscal, is wrong.

"The fiscal deficit will be contained within the Fiscal Responsibility and Budget Management Act mandate of 3 per cent this year", said a ministry official.

Fitch had on Tuesday said the revision was based on considerable deterioration in the Central government's fiscal position in 2008-09 and a notable increase in debt issuance to finance subsidies not captured in the Budget.

However, finance ministry officials do not agree. "The interest rate burden for existing debt of the government is fixed. The escalation in cost will only be in case of new borrowings as the coupon rate for existing debt is fixed. The only other pressure point is the Sixth Pay Commission award, which is yet to be finalised but has already been factored in," said an official.

For fiscal 2008-09, the central government has targeted a fiscal deficit of 2.5 per cent of GDP, while keeping an additional headroom of 0.5 percentage points on account of the expected rise in the wage and arrears bill.

Officials said the Fitch outlook had been shared with the finance ministry before it was made public, adding that the revision was of little consequence as the agency had not changed the foreign currency outlook but only the domestic outlook for the rupee.

"This does not change the situation for foreign investors," said the official.


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