India to meet next year's fiscal deficit target: Moody’s

The Dollar Business Bureau

International credit rating agency Moody’s Investors Service said on Monday that India’s Union Budget 2018-19 had struck a balance between growth and fiscal prudence. And a little slippage in the target of fiscal deficit would not have material effect on the overall fiscal strength of the country.

In the Budget, presented on February 1 by Finance Minister Arun Jaitley, the Government has revised its fiscal deficit target for 2018-19 to 3.3% of gross domestic product (GDP) from the previous estimates of 3%. The estimate for 2017-18 has also been revised to 3.5% of GDP, from the original projections of 3.2%.

“The revised fiscal consolidation path is modestly shallower than the previous road map, but it does not fundamentally alter India's overall fiscal strength,” said William Foster, Vice President (Senior Credit Officer), Moody's, in a statement.

“In addition, the medium-term target to cut the debt-to-GDP ratio of the Government to 40% was in favour of the sovereign credit profile,” he added.

“The Budget benefits corporates, as well as the infrastructure and insurance sectors. The budgeted capital infusion for the public sector banks is in line with the recapitalisation road map detailed in October 2017,” said Joy Rankothge, Vice President (Senior Analyst), Moody’s.

Moody’s expects that the Government would meet deficit target for 2018-19, based on attainable assumptions and commitment demonstrated to fiscal prudence in the Budget. Though, some assumptions regarding ambitious revenue and uncertainty on part of few spending items could result in a shortage in overall fiscal consolidation.

The estimated expenditure limit and robust growth in revenues are expected to be mostly achieved. Several measures such as the rule to hike the minimum support prices (MSP) and the ambitious revenue target for Goods and Services Tax (GST) could result in more slippage, said Foster.

The formal implementation of major recommendations by Fiscal Responsibility and Budget Management (FRBM) Committee is credit positive, including the target to reduce the Government’s debt-to-GDP ratio to 40% from the current 50% and the consider the fiscal deficit target as the key operational parameter for the Government.

The rating agency said the Budget assumption of nominal GDP growth at 11.5% for 2018-19 is in line with its forecast. Constant growth in nominal GDP would depend on private investment cycle recovery, which in turn be depend on successfully implementing present and future reforms.

The recent efforts of the Government for addressing the NPA issues of public-sector banks (PSBs), with the help of recapitalisation and resolving the problem loans should result in stronger investment, it said.