Fiscal deficit projection of 3.3% for FY19 in Budget achievable: Moody’s

02 Feb 2018 Evaluate

Global rating agency Moody’s Investors Service, in its latest report, has said Budget 2018 is in line with the government’s fiscal consolidation path and the fiscal deficit projection of 3.3% for fiscal year 2018-19 is in line with its forecast and the target will be achieved. Finance Minister Arun Jaitley, in the Budget, revised fiscal deficit estimates for the current financial year upwards at Rs 5.95 trillion or 3.5% of Gross Domestic Product (GDP) against the earlier estimate of 3.3% and also projected 3.3% for FY19, up from the road-map of 3% of GDP.

The ratings agency noted that the direction of fiscal deficit announced in the Budget is in line with their forecast and expect that fiscal deficit targets will be broadly achieved. It also warned that a slower broadening of the tax base after the note-ban and the goods and services tax (GST) implementation as well as weather-related impacts on crops could contribute to revenue slippage. On the other hand, it said that rapid rise in the number of taxpayers, albeit from a low base, could contribute to revenue growth more significantly than they currently expect. It also expects revenue generation targets will be broadly achieved as the medium- to long-term benefits of GST and note ban reforms, including increasing the size of the formal economy, are realized over the next several years.

Global rating agency further expects the somewhat larger deficit than initially budgeted for fiscal 2018, at 3.5%. However, it said that this outcome does not alter the longer-term trend towards fiscal consolidation. It forecasts the debt-to-GDP ratio to be about 69% in fiscal 2019, which incorporates their assessment of the deficit trends based on the announced budget. The high debt burden remains a credit constraint for the sovereign, and is not expected to diminish rapidly because of the country’s low income levels leading to significant development spending needs and constraining the scope of tax base broadening.

It further said that the continued focus to promote expenditure efficiency through rationalization of government schemes and better-targeted delivery and re-asserted endorsements of the FRBM committee recommendations are credit positive. For FY19, Jaitley has set a disinvestment target of Rs 80,000 crore. Moody’s said that this year's divestments exceeding targets marks a break in a recent trend of missing ambitious targets. Adding further, it said that increased divestments could

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