Slower consolidation to constrain India’s fiscal strength over medium term: Moody’s

The U.S.-based agency said it expects India’s nominal GDP growth to rise to closer to 17% in fiscal 2021, higher than 14.4% projected in the Budget

Rating agency Moody’s on Wednesday India’s fiscal deficit projections are higher than expected and slower consolidation will constrain its fiscal strength over the medium term.

The U.S.-based agency said it expects India’s nominal GDP growth to rise to closer to 17% in fiscal 2021, higher than 14.4% projected in the Budget.

Moody’s Vice President and Senior Credit Officer William Foster said while the headline deficit projections are larger than the agency expected, they reflect both credible budgetary assumptions and greater transparency than in past budgets.

“The budget’s focus on higher capital spending, financial sector reform and asset sales will help stimulate growth, but implementation risks remain and slower fiscal consolidation will constrain fiscal strength over the medium term,” Mr. Foster added.

As per the glide path for fiscal consolidation announced in Budget, the government plans to bring down the fiscal deficit to 4.5% of gross domestic product (GDP) by 2025-26 fiscal.

It said greater transparency on off-balance-sheet food subsidy expenditure and more conservative revenue assumptions have contributed to the government’s higher deficit number for fiscal 2020. India has budgeted a fiscal deficit of 9.5% of GDP for the current fiscal ending March.

“We believe the final number could be lower, based on stronger revenue generation during the fourth quarter of fiscal 2020 (ending March 31, 2021),” Moody’s said in a note.

The fiscal deficit for 2021-22 fiscal beginning April 1 has been pegged at 6.8%.

In the note titled ‘India’s budget to drive broad economic growth, but fiscal consolidation prospects remain weak’, Moody’s said “the government’s relatively conservative nominal GDP growth assumption of 14.4% for fiscal 2021 creates potential for stronger fiscal outcomes than it currently forecasts. We expect India’s nominal GDP growth to rise to closer to 17% in fiscal 2021 (ending March 31, 2022)”.

Moody’s said the financial sector will undergo some credit positive reform under the new budget. Banks will benefit from the establishment of an asset reconstruction company to resolve legacy problem loans, and public sector banks additionally from a ₹20,000 crore capital infusion.

Tax incentives and other measures to increase consumption are credit positive for non-financial companies, with stronger demand in the housing and automobile sectors to carry over to other sectors such as steel, it added.

Moody’s believes ₹1.75 lakh crore disinvestment target is achievable, based on its expectation of strengthening economic conditions and relatively supportive financial markets, but it will be subject to significant implementation risk.

You have reached your limit for free articles this month.

Subscription Benefits Include

Today’s Paper

Find mobile-friendly version of articles from the day’s newspaper in one easy-to-read list.

Unlimited Access

Enjoy reading as many articles as you wish without any limitations.

Personalised recommendations

A select list of articles that match your interests and tastes.

Faster pages

Move smoothly between articles as our pages load instantly.


A one-stop-shop for seeing the latest updates, and managing your preferences.


We brief you on the latest and most important developments, three times a day.

Support Quality Journalism.

*Our Digital Subscription plans do not currently include the e-paper, crossword and print.


Source link

Leave a Reply

Your email address will not be published. Required fields are marked *