MUMBAI, MAR 3: The Duff and Phelps Credit Rating (DCR) has warned that current fiscal trends would undermine India's sovereign credit worthiness. The US-based credit rating agency has also expressed concern about the government's ability to meet the new fiscal deficit targets that were set in 1999-2000 budget.According to Shelly Chaddha, assistant vice-president and sovereign analyst for India, "The country has not met its fiscal targets for two years in running." The government used new accounting methodology to calculate the current fiscal deficit target of 4.4 per cent of GDP. Using the previous methodology and GDP series, the 1999-2000 deficit target would be equal to 6 per cent of the GDP.The DCR pointed out that India's fiscal pressures intensified in 1998-99 leading to a deficit of 6.5 per cent of the GDP against the government's target of 5.6 per cent. Persistently high fiscal deficits are likely to postpone the reduction of central government debt - more than 60 per cent of GDP in 1998-99 -and its very high interest burden, which was 49 per cent of government revenue receipts last fiscal.India's fiscal consolidation in 1999-2000 is expected to come from rationalisation of excise and customs taxes, a surcharge on direct taxes and privatisation receipts. "DCR recognises the efforts of the government to rationalise the structure of indirect taxes. However, in an economy where central government tax revenue represents approximately 6 per cent of the GDP, expansion of the tax base will be critical for strengthening the revenue capacity of the government over medium term", said Chaddha.She opined that strong political support would be essential for maintaining the medium-term fiscal reform efforts.The lacklustre performance of India's exports in the last three year was another major credit concern, she said adding, "slow export growth places pressure on the external accounts and adversely effects the external debt repayment capacity of India."However, she said, "a sizable internationalreserve position and low short-term debt exposure would support India's external liquidity position. DCR currently rates India's foreign currency obligations at BB (plus) and local currently obligations at BBB. The outlook on both ratings is currently stable.
