Explained | Why is the Centre annoyed by rating agencies sceptical about India’s plan for correcting its fiscal math?

What was the target? How do independent economists assess this debate?

The story so far: In the Union Budget for 2022-23, the Government has ramped up its capital spending plans to a record 2.9% of the GDP to revive the economy, with an ambitious borrowing plan and a target to reduce fiscal deficit level to 6.4%. Rating agencies, concerned about India’s heightened general government debt levels (adding up States’ debt with that of the Centre’s), have reacted with cautious scepticism about the roadmap for correcting India’s fiscal math in the next few years, which has not gone down well with the Finance Ministry.

In the pandemic-shock year of 2020-21, the Union Government’s fiscal deficit —or the gap between expenses and earnings —had expanded to 9.2% of GDP as the COVID-19 lockdowns necessitated greater spending on healthcare and minimal welfare support for the most vulnerable. The Government had hoped to correct that metric to 6.8% in 2021-22, but is now expected to end the financial year with a deficit of 6.9% of the GDP. The 15th Finance Commission had recommended that the Government’s deficit for 2022-23 should be contained at 5.5% of the GDP under a slow recovery scenario, with a target to achieve a deficit level of 4.5% of the GDP by 2025-26. Finance Minister Nirmala Sitharaman had, in Budget 2021-22, agreed to the 2025-26 target.