Fiscal reform key to India's infrastructure development: S&P

SINGAPORE - Without further fiscal reforms, the Indian Government may find it difficult to sustain the increase in public investment spending, according to a new report publishing by  ratings agency Standard & Poor's today.

"Although India's budgetary performances have strengthened in recent years, its hard-won fiscal improvements could yet unwind because of a financial or commodity shock," says S&P credit analyst, Kim Eng Tan. "Subsidy spending is one key source of weakness, despite fuel-subsidy reforms in 2014.
Another constraint is heavy Government debt."

The report notes that the central Government budget deficit in India has fallen in recent years, relative to GDP. However, the latest-year deficit reduction didn't come easy. Disappointing tax collections, especially services tax collection, dragged estimated total revenue for the fiscal year ended March 2015 6.3% below the central government's initial budget projection.

The Government had to cut spending by a similar proportion to prevent the budget shortfall from widening, S&P says. Since the subsidy bill came in above expectations, the Government made significant cuts to capital investments to bring spending down.

"The central government's willingness to cut spending to rein in the budget
deficit indicates the high priority of fiscal prudence on its agenda," says Tan. "From an institutional and governance point of view, this supports
the sovereign credit rating on India [BBB-/Stable/A-3]. However, structural fiscal weaknesses continue to be vulnerabilities of Indian sovereign creditworthiness." www.standardandpoors.com (ATI).