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Rating agency Moody’s Investor Service recently projected India’s nominal growth at 17 per cent for the coming fiscal, up from the earlier 14.3 per cent based on the ‘pro-growth’ budget, but highlighted weak prospects of fiscal consolidation. “The budget's focus on higher capital expenditure, financial sector reforms and asset sales will help to stimulate growth and supply broad-based credit support,” it said in a report.
The larger-than-expected deficit projections reflected both credible budgetary assumptions and greater transparency, but the government's weak fiscal position is likely to remain a key credit challenge, Moody’s said.
The latest budget forecast nominal gross domestic product (GDP) growth at 14.4 per cent.
The agency had pegged India’s fiscal deficit for the current fiscal at 7.5 per cent of GDP and 5.5 per cent for the next fisscal, while the budget put the figures at 9.5 per cent and 6.8 per cent for 2020-21 and 2021-22 respectively.
“However, compared with previous budgets, the gap between our forecasts and the government's, largely reects increased transparency on subsidy spending and more credible overall assumptions,” the report said, adding that it expects the nal gure to be lower based on stronger revenue generation during the fourth quarter of 2020-21.
In terms of the consolidation roadmap, without providing the explicit path, the targeted deficit of 4.5 per cent by 2025-26 implied an average annual deficit reduction of about 0.5 per cent of GDP over four years.
Combined with the expected rise in debt burden to over 90 per cent in the ongoing fiscal, the “gradual pace of consolidation will prevent any material strengthening in the government's scal position over the medium term,” Moody’s said.
The agency counted the opening up of the insurance sector to 74 per cent foreign direct investment from 49 per cent as a credit positive and said achieving the disinvestment target of ₹1.75 lakh crore would be key to achieving other budget targets.
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Moody's projected India's nominal growth at 17 per cent for fiscal 2021-22, up from 14.3 per cent earlier based on the 'pro-growth' budget, but saw weak prospects of fiscal consolidation. "The budget's focus on higher capital expenditure, financial sector reforms and asset sales will help to stimulate growth and supply broad-based credit support,” it said.