Expressing concern over India’s fiscal deficit, global rating agency Moody’s Investors Service in its latest report has said that any cut in excise duty on petrol and diesel would adversely affect fiscal deficit unless it is matched by a commensurate cut in expenditure. In order to bring down petrol and diesel prices which have gone up following a spike in crude prices in the international market, pressure has been mounting on the government to cut excise duty on these products. According to government estimates, every rupee cut in excise duty on petrol and diesel will result in a revenue loss of about Rs 13,000 crore.
The ratings agency has said that the country’s biggest challenge is its fiscal strength which is relatively low as compared to ‘Baa’ rated peers. It added that fiscal consolidation would be closely watched for assigning the sovereign rating. It also said that any reduction in revenues, including through the excise duty on petroleum and diesel, would most likely need to be offset by a comparable reduction in expenditure in order to achieve fiscal consolidation. Moody’s had upped India's sovereign rating for the first time in over 13 years to 'Baa2' with a stable outlook and said that growth prospects have improved with continued economic and institutional reforms.
Moody’s further said that India's biggest credit challenge is its fiscal strength due to persistently large general government fiscal deficits and a high debt burden. Additionally, maintaining the government’s commitment to fiscal consolidation will be a very important contributor to the strengthening of India's fiscal dynamics and overall sovereign credit profile. Besides, the government plans to bring down the fiscal deficit -- the gap between total expenditure and total revenue -- during 2018-19 to 3.3% of the gross domestic product (GDP), from 3.53% in last fiscal.
