Higher deficit unlikely to attract immediate ire of rating agencies
28 Feb 2015
By Radhika Rao, economist, DBS, Singapore
Today's budget was pragmatic, wide-ranging and inclusive given the emphasis on social safety nets.
On the fiscal math, the deficit target has been set at 3.9 per cent of GDP, deviating modestly from the roadmap's target of 3.6 per cent.
But the government reiterated its commitment to medium-term consolidation by maintaining the 3 per cent target, but delayed the timeline.
We had flagged risks of a higher deficit target to accommodate realistic economic assumptions, higher public expenditure and increased devolution to states.
The higher target is unlikely to attract the immediate ire of rating agencies and the markets, but will need the higher-frequency fiscal performance to back that faith.
Rightfully, public investments have been given precedence to kick start the capex cycle, picking the slack from the stressed private/corporate and banking sectors.
Overall, the budget was positive, but we are uncertain if there will be any imminent rate reaction from the central bank.
