Budget tilted towards supporting growth; FY22 fiscal deficit target of 6.8% realistic: Moody’s : 26-02-2021

India’s Budget is tilted towards supporting growth and the fiscal deficit target of 6.8 per cent for 2021-22 is realistic, Moody’s Investors Service said on Thursday.

With regard to India’s finances, Moody’s said weak fiscal position will remain a key credit challenge in 2021

It said the government’s fiscal deficit for 2020-21 and 2021-22 should be lower than projected, supported by stronger revenue generation in ongoing March quarter and higher nominal GDP growth in the next fiscal year.

“India Budget tends to tilt a little bit in favour of support for growth. The deficit in Budget for FY’22 was above what we expected, but nevertheless we think that the deficit target is a realistic one.

“The government has incorporated a conservative assumption of nominal GDP growth and we think most revenue assumptions conservative, with the possible exception of monetisation expectations pegged in Budget,” Moody’s Associate Managing Director (Sovereign Risk) Gene Fang said.

Wide fiscal deficits combined with lower real and nominal GDP growth over the medium term will constrain the government’s ability to reduce its debt burden, Fang said in an online conference organised by Moody’s and its affiliate ICRA on ‘India Credit Outlook 2021’.

Moody’s said the prospects for fiscal consolidation remain weak particularly given the government’s mixed track record of implementing revenue-raising measures.

Although the government has not provided an explicit medium-term fiscal consolidation road map, the budget targets a fiscal deficit of 4.5 per cent of GDP by fiscal 2025-26, which amounts to an average annual deficit reduction of about 0.5 per cent of GDP over four years, it added.

“Given India’s very high debt burden, this gradual pace of consolidation will prevent any material strengthening in the government’s fiscal position over the medium term, unless nominal GDP growth picks up sustainably to reach much higher rates than historically recorded,” it added.

India has exceeded its fiscal deficit target of 3.5 per cent in the current fiscal year by a wide margin due to higher spendings to stimulate the economy amid the pandemic.

The fiscal deficit – the excess of government expenditure over its revenues – has been pegged at 9.5 per cent of the GDP in the current fiscal year, as per the revised estimate.

For 2021-22, the deficit has been put at 6.8 per cent of the GDP, which will be further lowered to 4.5 per cent by 2025-26.

Source : PTI

error: Content is protected !!