Expressing cautiousness over India’s sovereign's credit, Moody's Investors Service in its latest report has said that weak growth prospects for the country (Baa2 stable) will complicate the government's fiscal consolidation efforts, weighing on the sovereign's credit quality. The 2019-20 Budget presented in Parliament on July 05, had projected to contain fiscal deficit at 3.3 per cent of Gross Domestic Product (GDP), lower than 3.4 per cent estimated in the interim Budget. It also projected a more gradual decline in government debt.
Moody's said delivering on fiscal consolidation and raising incomes will be extremely challenging for India's authorities, particularly since growth is likely to remain weak over the coming year. However, it highlighted that budget announcements are credit positive for public sector banks, non-bank finance companies (NBFCs), infrastructure sector, property developers, some domestic producers and securitisation transactions.
As per the report, the Rs 70,000 crore capital infusion into public sector banks and a temporary credit guarantee facility to alleviate tight liquidity for NBFCs are measures that are credit positive for the relevant entities and should encourage the flow of credit to the economy and support growth. It added that the hike in customs duties on certain imported products will increase the competitiveness of domestic producers, while new incentives for the purchase of affordable homes will be credit positive for Indian property developers.
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