New Delhi, Feb. 21: Just a week before the Union budget, global rating agency Fitch has warned against continued high fiscal deficit which it said could jeopardise the government?s dream of clocking 7-8 per cent GDP growth.

?India?s ability to grow at 7-8 per cent on a sustained basis will remain in doubt as long as the public sector fails to put its financial house in order,? Fitch director Shelly Shetty said.

?A weak revenue base lies at the root of India?s fiscal woes. The tax structure is complicated, riddled with loopholes and heavily skewed towards the industrial sector, while other key sectors remain very lightly taxed,? Fitch said.

The rating agency feels that this exposes India to ever increasing fiscal deficits. ?The weak state of public finances represents the singlemost important constraint on its sovereign ratings,? Shetty said, adding, ?Implementation of a credible fiscal consolidation process would hasten India?s graduation to investment grade.?

The agency currently rates both India?s long-term foreign currency and local currency sovereign debt issues at BB+ with a stable outlook. The short-term rating is B.

Fitch pointed out that the services sector, which account for almost half of the GDP, generates just one twentieth of the total tax revenue. It added, ?This is not the time for the government to become complacent as public finances have deteriorated since the mid-1990s, with government deficit consistently exceeding 9 per cent of GDP and debt rising to over 80 per cent of GDP.?

The rating agency?s own prescriptions included ? a more aggressive pace of fiscal consolidation, a broadening of the tax base, implementation of a state-level VAT, phasing out of subsidies, and renewed impetus on privatisation and liberalisation of the foreign investment climate.

It cautioned that balancing the demands for greater social and capital expenditure ? for which the Congress government campaigned in the last election ? against needs for fiscal consolidation will be a tough job.

Market borrowing

The Centre completed its market borrowing for this fiscal at Rs 1,03,000 crore, which is 23.42 per cent lower than the previous year?s.

However, states continue to tap the bond market and have lined up 12-year papers worth Rs 6,300 crore to be raised in the next few days.

The Centre ended its gross market borrowing at Rs 1,03,000 crore, which is about 3 per cent lower than its revised estimate of Rs 1,06,000 crore, PNB Gilts said in a report.

The central government?s market borrowing till February 18 this fiscal was 23.42 per cent lower than Rs 1,34,500 crore during the corresponding period of the previous fiscal.

Net borrowings, after redemption of securities worth Rs 58,316 crore, plummeted 53 per cent to Rs 44,684 crore till February 18 this fiscal compared with Rs 95,032 crore in the year-ago period.

Net borrowings have been completed to the extent of Rs 44,684 crore compared with the revised net borrowings target of Rs 45,684 crore, it said.