New Delhi: Deutsche Bank today said India's sovereign ratings outlook may worsen if the fiscal adjustment envisaged in the budget is not accomplished due to unfavorable macro developments.
"A key risk to India’s ratings in the coming year or two is that the fiscal adjustment envisaged in the budget is not accomplished due to unfavorable macro developments (further slowdown in growth and policy slippages)," Deutsche Bank said in a note.
The bank said if the slippage also reflects no medium-term movement toward expanding the tax base (through implementation of the GST, bringing more services under taxation) and expenditure restraint, the ratings outlook would invariably worsen.
The government revised the fiscal deficit estimate of 2011-12 to 5.9 percent of GDP (up from 4.9 percent in 2010-11) as against the budgeted target of 4.6 percent of GDP.
"Shortfall in revenues and higher expenditure, especially related to subsidies, had made it evident rather early in the fiscal year that the government would not be able to meet its budget estimate, but the magnitude of fiscal deterioration was particularly striking," it said.
The government has aimed at a fiscal deficit of 5.1 percent of GDP in the financial year beginning from April and the government wants subsidy burden to lower as much as 2 percent from 2.5 percent.
However, Deutsche Bank expects the deficit to be marginally 5.1 percent of GDP in 2012-13.
The reported slippage, it said, is so large that there is a decent chance for the actual deficit to be lower than the provisional estimate.
"We find it highly unlikely that plan expenditures were 4.8 percent of GDP during a year when appropriations found considerable friction due to governance scandals and policy implementation slowdown," it added.