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S&P dampens spirits

Says the government efforts may be hit by commodity shock

Mumbai: Global rating agency Standard & Poor’s (S&P) on Monday said that the Indian government would find it difficult to sustain the increase in public investment spending without further fiscal reforms.

“Although India’s budgetary performances have strengthened in recent years, its hard-won fiscal improvements could yet unwind because of a financial or commodity shock,” said S&P credit analyst Kim Eng Tan.

“Subsidy spending is one key source of weakness, despite fuel-subsidy reforms in 2014. Another constraint is the heavy government debt,” he added. The rating agency noted that the central government’s budget deficit has fallen in the recent years, relative to GDP. However, the latest-year deficit reduction didn’t come easy.

Disappointing tax collections, especially services tax collection, dragged estimated total revenue for FY15 to 6.3 per cent below the central government’s initial budget projection.

The government had to cut spending by a similar proportion to prevent the budget shortfall from widening. Since the subsidy bill came in above expectations, the government made significant cuts to capital investments to bring spending down.

S&P further said that the large interest payments and subsidy spending in budgetary expenditure are signs of fiscal risks because they leave little for the government to spend at its discretion.

( Source : dc correspondent )
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