InvestorQ : Can India afford to run high fiscal deficit for the next few years?
prachi Patwardhan made post

Can India afford to run high fiscal deficit for the next few years?

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sara Kunju answered.
1 month ago
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Fiscal deficit is likely to be a much bigger problem in FY2, so India has to be careful. Firstly, while the lockdowns are in place, the real impact will depend on the pace of vaccinations. That is yet to show real traction. Another big risk is oil. With Brent crude at $72/bbl, government has little room to either raise taxes on petrol and diesel or to subsidize the retail consumer. You may either end up too much debt or too much inflation.

Most rating agencies have already putting India’s rising debt burden on watch list. The expectation was that India would let fiscal deficit expand but with timetable to revert to normal. Moody’s S&P and Fitch are already at the gates with constant warnings about the worsening fiscal scenario. The challenge is that India’s fiscal levers are limited. FY22 could mean facing up to the reality as rating agencies turn more aggressive.

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