Budget issues were not just the preserve of China in the last short while.  On Friday February 26th, the Indian Finance Minister Pranab Mukherjee presented the annual Union budget. The Finance Minister was optimistic on growth, having largely avoiding severe economic contraction (growth fell to a relatively robust 6.7 percent in 2008-9), he projected that Indian growth for the coming year would reach 7.2 percent. 

Equally important, the Finance Minister projected that the fiscal deficit should fall to 5.5 percent of GDP from the current 6.9 percent.  But to do so, the government is proposing to raise some $9 billion from the sale of stakes in SOEs. The government currently owns 473 SOEs worth around $500 billion  - about 45 percent of the GDP. While minority sales are better than nothing, the government, and the economy, would be better off with complete privatization rather than minority sell offs. But privatization seems unlikely and there remains strong domestic opposition to minority sales as well.  This makes the goal less than certain. And that in turn makes the debt to GDP ratio – standing at 80 percent – worrisome.

While India’s debt is owned primarily by Indians (thus a great contrast to say a recent in the news debtor – Greece) India’s rupee-denominated debt is rated by Moody’s at Ba2, or two levels below investment grade, while Fitch and the S&P have rated the debt at BBB the lowest investment grade.  This puts India’s rating at below that of other rising powers such as China and Brazil. 

One last note – India continues to maintain its subsidies on fertilizer, food and fuel.  A continuing negative sign for India’s financial policy.     

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