The sustained focus on supporting economic growth through high public capital expenditure (capex) also points to continuity in key areas.

The lowered fiscal deficit target in the budget should be achievable as the government’s assumption of 10.5 per cent nominal gross domestic product (GDP) growth in this fiscal (FY25) is modestly below Fitch’s current forecast, the rating agency said.

“We think the government should also be able to achieve its goal of reducing the deficit below 4.5 per cent of GDP in FY26,” it said in a release.

The government’s record in recent years of achieving or outperforming on its budget deficit targets has improved its fiscal credibility, it noted.

Public finance metrics in general remain a weakness in India’s credit profile; its fiscal deficit, interest-to-revenue and debt ratios are still high compared with ‘BBB’ category peers, observed Fitch.

“Sustained fiscal consolidation that supports a downward trajectory in the government debt ratio over the medium term would support India’s credit profile and could ultimately contribute to upgrade potential for the rating, particularly when combined with the current positive momentum on macroeconomic performance and external finances,” it said.

The budgetary measures to review customs duties over the next six months and reduce foreign firms’ corporation tax rate to 35 per cent from 40 per cent should be positive for manufacturing investment, as should public capex-led improvements to transportation infrastructure, Fitch noted.

However, land and labour regulations remain significant constraints, it added.

Fibre2Fashion News Desk (DS)