Fiscal discipline stabilizes debt-to-GDP ratio: Fitch

New Delhi: Fitch Ratings on Friday said the slightly faster pace of fiscal deficit reduction does not significantly change India’s sovereign credit profile, but the government’s emphasis on deficit reduction will help stabilise the debt-to-GDP ratio over the medium term.

In a post budget commentary, Fitch Ratings Director, Sovereign Ratings, Jeremy Zook said over the next five years, India’s government debt-to-GDP ratio would be broadly stable at just above 80 per cent of GDP. This is based on a continued path of gradual deficit reduction, as well as robust nominal growth of around 10.5 per cent of GDP.

In the interim Budget 2024-25, presented in Parliament on Thursday, the government revised lower its current year fiscal deficit to 5.8 per cent from 5.9 per cent budgeted earlier. The deficit, which is the gap between the government’s revenue and expenditure, will come down to 5.1 per cent in 2024-25 and further to 4.5 per cent by 2025-26. Fitch said this demonstrates a firm desire to adhere to a path of gradual fiscal consolidation even amid an election year.

Our current forecast is for the deficit to reach 5.4% of GDP in FY25, above the budget target due to more conservative revenue forecasts in the next year. But the government has shown a recent record of achieving fiscal targets, which gives credibility for it to reach the 5.1 per cent target

- Jeremy Zook, director, Fitch Ratings