India's "less aspiring" fiscal consolidation negative for ratings - Fitch

MUMBAI (Reuters) - India's budget could have been more ambitious on the fiscal front given the country's high public debt burden, Fitch Ratings said on Monday, two days after the finance minister announced plans to prioritise growth over painful reforms.

Fitch welcomed India's efforts to press on with structural reforms and a push to resolve bottlenecks that have held up major infrastructure projects, but it said the "less aspiring" fiscal consolidation strategy was negative for ratings.

Indian Finance Minister Arun Jaitley announced on Saturday a budget that aims to boost economic growth, slows the pace of fiscal deficit cuts and seeks to put domestic and foreign capital to work.

"The medium-term fiscal consolidation strategy is less aspiring than in the past, which is negative from a sovereign rating perspective," Thomas Rookmaaker, director at Fitch's Asia-Pacific Sovereign Group, wrote in an email.

"If disinvestment would be treated as a "below the line" financing item, as is international best practice, instead of a revenue item, the fiscal deficit would actually rise from 4.3 percent in FY15 to 4.4 percent in FY16," he added.

India's public debt burden is close to 65 percent of GDP, well above peers in similar rating categories, Fitch said. The median of countries in the "BBB" category, which includes India with a rating of "BBB-minus", is 39 percent of GDP.

"Instead of fiscal consolidation, the government has chosen to increase capital expenditures to stimulate investment and, subsequently, GDP growth. We see some merit in this approach, as the government’s capital expenditure can crowd in private investments," Fitch's Rookmaaker said.

"At the same time, the fiscal position is a longstanding key weakness in India’s sovereign rating profile."

(Reporting by Swati Bhat; Editing by Gareth Jones)