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The Indian government is likely to limit its total spending on coronavirus-related relief to around Rs 4.5 trillion ($ 60 billion), due to concerns that overspending could trigger a downgrade of the sovereign rating, two said senior government officials.
“We have to be cautious as the downgrades have started to occur for some countries and the rating agencies treat developed nations and emerging markets very differently,” the first official told Reuters.
On Tuesday, Fitch warned that India’s sovereign rating could be under pressure if its fiscal outlook deteriorates further as the government tries to guide the country through the coronavirus crisis.
“We have already made 0.8% of GDP, we could have room for another 1.5% -2% of GDP,” said the official, who is involved in preparing the package, referring to the 1.7 trillion disbursement. of rupees that the government announced in March that it was aimed at helping the poor through cash transfers and distribution of food grains.
The stimulus plans still to be defined are likely to aim to help people who have lost their jobs, as well as small and large companies, through tax breaks and other measures, both officials said. They declined to be named as the matter is still under discussion.
A spokesman for the finance ministry declined to comment.
Fitch and Standard & Poor’s have India tied to an investment grade rating that is one level above a junk rating, while Moody’s Investors Service is the only major rating agency to have India rated two levels above The trash.
With a 40-day national blockade halting the $ 2.9 trillion economy, and the blockade in many of India’s major cities likely to extend, many economists expect the economy to stagnate, or even contract this year, still pressing plus government finances. .
The second official said government revenues are in a difficult position due to “very weak” tax collections, and the fact that a 2.1 billion privatization program planned for this fiscal year now looks like it will not be a start. .
The government cut the wages of legislators, including the prime minister and the president, and withheld increases for government employees and pensioners, in an effort to save as much as possible to control fiscal slippage.
India has a fiscal deficit target of 3.5% of GDP for the current year, which runs through March 2021, and is highly likely to be missed due to weak revenue collection.
In this economic situation, when incomes are falling and the economy needs government support, the widening of the fiscal deficit is an inevitable conclusion, the second official said.
“Given our larger fiscal deficit … the government has limited margin to spend,” the second official told Reuters.
India has reported more than 35,000 cases and 1,147 confirmed deaths from the coronavirus.
