India’s Finance Ministry Pledges Fiscal Deficit Target Will Be Met

September 10, 2014 Posted by India Briefing Reading Time: 3 minutes

DELHI – India’s Finance Ministry has this week stated that measures are being taken to help reduce its fiscal deficit, and has made assurances that its target to bring the deficit down by 4.1 percent by the end of the financial year is still well within sight.

The Ministry’s comments followed a meeting with Moody’s Investors Service – a business that provides sovereign ratings – on Monday. The Finance Ministry gave Moody’s a presentation to help allay concerns that India’s fiscal deficit is uncontrollably high; a fear that, once alleviated, may allow for India’s sovereign rating category to be improved.

Moody’s last week stated that India’s fiscal deficit is a key factor preventing upward momentum for the Asian superpower’s sovereign rating, which is currently ranked by Moody’s in its lowest possible category. By the end of July, India’s deficit had already passed sixty percent of the year’s full target, raising concerns that the government’s stated aim of lowering the deficit to 4.1 percent is now unachievable.

However, India’s Finance Secretary Arvind Mayaram is confident that the positive GDP growth India has recently seen will help put the country on the right track to maintain its deficit target and improve its sovereign rating category. Statistics released last week show that, compared to figures from last year, GDP has grown by 5.7 percent during Q2 of this year.

Speaking to reporters, Mayaram said: “We presented our case. The growth is coming back. The budget has strong growth impulses and response of the economy is positive. [Moody’s] have concerns about the fiscal deficit. We explained that we will be able to maintain the target.”

The Asian giant’s underdeveloped infrastructure and rising inflation are two other contributing factors in Moody’s assessment of India’s sovereign rating. The deal that Narendra Modi last week struck with Japan, which will see $US35 billion invested in India’s infrastructure, may therefore serve to mitigate the former of these two concerns and help bolster India’s case for a better sovereign rating.

In response to misgivings over inflation, which have recently been heightened over the recent monsoon to hit India, Mayaram said: “We have told them, we are taking care of the requirements [of food items]. We have adequate stock so that if monsoon is below normal and if production is marginally down then our stocks are adequate to take care of contingency. We will be able to manage it.”

If India does indeed meet its deficit target by the end of the current fiscal year, and Moody’s do in turn raise India’s sovereign rating category, it will be another important step in the country’s current development.

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