The postponement of consolidation in part reflects policies to support the economy, which was held back last year by weak investment and disruptions from demonetisation and the introduction of the Goods and Services Tax (GST), Fitch said.
"The Indian government's budget has pushed back fiscal consolidation, leaving much of the task of addressing the country's relatively weak public finances to the next administration," Fitch Ratings said in a statement.
However, the budget target revisions are modest, and are balanced by positive reform momentum and a strong economic outlook, the US-based agency said.
New spending initiatives announced in the budget include measures to boost rural incomes, an ambitious health insurance scheme intended to cover about 0.5 billion people, and funding for the construction and upgrading of medical colleges and hospitals.
"This spending will benefit a large section of the public ahead of general elections due by May 2019," Fitch said.
The fiscal slippage of 0.3 per cent of GDP in both 2017 -18 and 2018-19 is relative to last year's budget targets of 3.2 per cent and 3 per cent of GDP, respectively.
The target for current fiscal was missed largely because of higher expenditure, Fitch said.
This government's initial fiscal plan, set out in 2014, aimed to reduce the deficit to 3 per cent of GDP by FY18 - the level consistent with the Fiscal Responsibility and Budget Management (FRBM) Act of 2003.
"It now does not expect to hit that target until 2020-21, beyond its current electoral term," Fitch said.
Despite this slippage, the government stated in the budget that it plans to adopt a ceiling of 40 per cent of GDP for central government debt, as recommended by the FRBM Committee in January 2017, compared to an estimated 50 per cent of GDP in 2017-18.
"This would be a positive step towards a more prudent fiscal framework if eventually adhered to, even if debt is unlikely to fall below the ceiling by 2022-23, as recommended by the committee," Fitch said.
It said the revenue forecasts made in the budget appear broadly credible.
"Sluggish investment growth remains a drag on the economy, but a recovery might be supported by a corporate tax change that makes more companies eligible for the lower SME bracket, as well as the government's continued infrastructure investment drive," it said.
The budget decision to increase minimum support prices for agricultural goods to 1.5 times the cost of production is likely to lift rural incomes, but could also push up inflation and bring forward monetary tightening, Fitch noted.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.