Mini-Budget and vote-on-account 2004

Following are details and analysis of the mini-budget and vote-on-account 2004 :-

S&P report on vote-on-account (Feb 4, 2004)

LONDON, Feb 4, 2004 - Standard & Poor's Ratings Services said today that the recent mini budget announced by the Indian government (foreign currency BB/Stable/B; local currency BB+/Negative/B,) indicates a greater determination to curb fiscal deterioration. Nevertheless, the mini budget must be seen in the context of the anticipated general election as well as strong growth. The budget deficit for fiscal year 2003/2004 is estimated to reach 4.8% of GDP, from 5.4% in fiscal 2002/2003; but more importantly the deficit for fiscal 2004/2005 is boldly projected at 4.4% of GDP. Measures to meet this target include increasing tax revenue by 17.4% and limiting expenditure growth to 3.5%.

While these projections are based on expectations of 8% GDP growth, it is a positive sign that the looming general election has not led to a significant loosening in fiscal policy. Despite some modest pre-election tax concessions, the outlook for reducing the deficit appears more upbeat than it has in recent years.

Standard & Poor's credit ratings on India are constrained by the high public debt burden and fiscal inflexibility, with the consolidated general government deficit at more than 9% of GDP. The ratings on India could improve if the government can press on with reforms. These include reversing the fiscal trajectory by implementing plans to reduce the deficit and accelerate structural reforms to sustain economic growth.