Amid rising oil prices and interest rates, cuts in the goods and services tax on some items and relatively high increases in minimum support prices for some crops, credit rating agency Moody's Investors Service has said that India’s Fiscal deficit is likely to be wider than budgeted in the current financial year (FY19). The government had set the target for fiscal deficit at 3.3 per cent for the current fiscal. Fiscal deficit during the first quarter of current fiscal had touched 68.7 per cent of Budget estimates. Rating agency underlined that there are risks of India breaching the 3.3 per cent fiscal deficit target for the current financial year as higher oil prices will add to short-term fiscal pressures.
The rating agency further highlighted that the current account deficit (CAD), which is the difference between inflow and outflow of foreign currency, will widen but will not jeopardise India's external position; and the gap will remain significantly narrower than five years ago. Agency is expecting that the CAD to widen to 2.5 per cent of Gross Domestic Product (GDP) in the FY19, from 1.5 per cent in fiscal 2018, driven by higher oil prices and robust non-oil import demand.
However, Moody's stated that growth prospects remain in line with the economy's potential, around 7.5 per cent this year and next. Besides, in last year, it had upped India's sovereign rating for the first time in over 13 years to 'Baa2' with a stable outlook, saying that growth prospects have improved with continued economic and institutional reforms.