Unsure of whether India can meet FY15 fiscal deficit target: Fitch

Fitch has a more cautious projection on divestment proceeds than the budget

July 10, 2014 5:00 IST | India Infoline News Service
India's Finance Minister Arun Jaitley unveiled the Union Budget for 2014-15 speech in Lok Sabha today.
The FM said that fiscal prudence is of paramount importance and the Budget aims to lay down broad policy indications.
Stating that he is taking up the fiscal deficit target as a challenge, Finance Minister Arun Jaitley in his maiden Budget speech said, "We will try to meet the fiscal deficit target set for us."
"I have set a fiscal deficit target of 3.6% for 2015-2016," Jaitley said.
"The steps I will announce are only a beginning towards 7-8% growth to be achieved in the next few years," Jaitley said.
Andrew Colquhoun, Head of Asia-Pacific Sovereigns Group, Fitch Ratings, said, "The overarching point of the Indian government's budget announcement is that the rhetoric and targets are credit constructive in many areas, including returning to 7% to 8% economic growth and achieving budget deficit reduction. However, implementation will be key.
Shyamal Mukherjee, Leader Tax, PwC India, said, the fiscal and revenue target are well within the range given the tight situation and has encouraged manufacturing and infrastructure sector both by providing fiscal incentives and allocating resources for improvement in infrastructure and it's financing.
Fitch was surprised that the Finance Minister has stuck with the outgoing government's fiscal consolidation path. The agency is currently unsure how this can be met without further revenue-strengthening or expenditure-saving measures. The revenue measures that were announced today actually have the net effect of reducing revenues by 0.1% to 0.2% of GDP.
According to Ketan Dalal, senior tax partner, PwC India, "There was a widespread expectation regarding neutralisation of the retrospective amendment reindirect transfer. However, that has not happened, but at least there has been a clear acknowledgment now that retrospective taxation in future will not be resorted to. In so far as past pending litigation on these aspects is concerned, the existing matters in litigation will presumably continue, including the one(s) under arbitration.”
What has been now announced is that if new cases come up, they will be referred to a high level committee; the composition of the committee and the framework for decision making is unclear at this stage. It seems that there have been constraints in neutralisation of the amendment, but some middle path will be evolved, Dalal added.
Fitch has a more cautious projection on divestment proceeds than the budget. It remains to be seen how the government would react to a shortfall in tax or divestment revenues, if it occurred."

Read more:
Highlights of Union Budget 2014-15

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