DCR concerned over deficit targets

MUMBAI, MAR 3: The Duff and Phelps Credit Rating DCR has warned that current fiscal trends would undermine India's sovereign credit wor...

MUMBAI, MAR 3: The Duff and Phelps Credit Rating DCR has warned that current fiscal trends would undermine India8217;s sovereign credit worthiness. The US-based credit rating agency has also expressed concern about the government8217;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, quot;The country has not met its fiscal targets for two years in running.quot; 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 India8217;s fiscal pressures intensified in 1998-99 leading to a deficit of 6.5 per cent of the GDP against the government8217;s target of 5.6 per cent. Persistently high fiscal deficits are likely to postpone the reduction of central government debt 8212; more than 60 per cent of GDP in 1998-99 8211;and its very high interest burden, which was 49 per cent of government revenue receipts last fiscal.

India8217;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. quot;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 termquot;, said Chaddha.

She opined that strong political support would be essential for maintaining the medium-term fiscal reform efforts.

The lacklustre performance of India8217;s exports in the last three year was another major credit concern, she said adding, quot;slow export growth places pressure on the external accounts and adversely effects the external debt repayment capacity of India.quot;

However, she said, quot;a sizable internationalreserve position and low short-term debt exposure would support India8217;s external liquidity position. DCR currently rates India8217;s foreign currency obligations at BB plus and local currently obligations at BBB. The outlook on both ratings is currently stable.