Global rating agency Moody’s Investors Service in its latest report has observed that Fiscal slippage from the budgeted fiscal deficit targets over the past two years, coupled with tax cuts and spending ahead of the general elections, is credit negative for India. It also felt that the government will face challenges of meeting its target again next year and this does not bode well for medium-term fiscal consolidation.
According to report, that means it’s a factor that can impact the country’s credit rating, but there is no change in the outlook as of now. It also expects the direct cash transfer programme for farmers and tax relief steps for the middle-class will give a fiscal stimulus of about 0.45 percent of gross domestic product (GDP) and support growth through increased consumption over the near term, though at a fiscal cost. Emphasizing India’s high debt burden as its biggest credit challenge that is unlikely to diminish rapidly, it said it is a product of persistent fiscal deficits.
The ratings agency further said “over the near term, we do not expect material improvements in the country’s public finances, which will remain sensitive to changes in nominal GDP growth.” Moreover, it will become increasingly more challenging for the government to reduce India’s central government debt-to-GDP ratio to 40% by fiscal 2024 from 48.9% in fiscal 2018, consistent with the Fiscal Responsibility and Budget Management (FRBM) targets. It added that the FRBM roadmap targets fiscal deficit of 3% of GDP by fiscal 2020.