Fitch Ratings said on Friday a proposed 23.6% hike in salaries and pensions for about 10 million current and former government employees in India could hurt the country’s finances and underscore the weakness in its sovereign credit profile.
The pay hike proposed on Thursday by the Seventh Pay Commission is smaller than past increases as the central government faces pressure to curb its fiscal deficit.
Fitch said the pay hike could challenge the government’s goal of achieving a fiscal deficit of 3.5 percent in the year ending in March 2017, unless India can cut spending or raise revenues.
“The planned wage increase is sufficient to add substantive challenges to achieving the planned medium-term consolidation targets,” Fitch said in a statement.
“Delaying an improvement in India’s fiscal position would underscore a longstanding weakness for the sovereign credit profile,” it added.
The credit agency said the government debt burden of nearly 65 percent of gross domestic product was the highest among its “BBB-minus” rated countries, which have a median of 43 percent of GDP.