Moody’s Investors Service has stated that steps taken by the government to help Micro- Small and Medium Enterprises (MSMEs) and the measures being planned to support farmers will increase the risk of fiscal slippage and push deficit to 3.4 per cent of the gross domestic product (GDP) in the current financial year (FY19). The government had budgeted the fiscal deficit for the current financial year at 3.3 per cent of GDP. However, in the first eight months of current financial year (April-November), the deficit touched 114.8 per cent of the budget estimates.
The rating agency asserted that meeting the short-term fiscal objectives through one-off sources of revenue, such as special dividend from the Reserve Bank of India (RBI), and cuts in capital expenditure will denote low fiscal policy effectiveness.
Besides, Moody’s highlighted over the past month, India’s government announced a range of policies to support the incomes of small enterprises and low-income households. It is also considering additional steps to support farmers facing financial distress. In the absence of new revenue-boosting measures, the policies will collectively make it harder for the government to achieve its fiscal consolidation objectives.