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Moody's expresses doubts on India's higher revenue targets from tax, divestment

02 Feb 2021 Evaluate

Moody's Investors Service, while silent on the sovereign rating on the higher-than-expected fiscal deficit numbers, has expressed doubts over attaining the higher revenue targets and divestment realisation as assumed in the Budget.

The Union Budget 2021-22 has pegged a fiscal deficit of 9.5 per cent for the current financial year as against the consensus 7 per cent, and 6.8 per cent for 2021-22 with a market borrowing of around Rs 12 lakh crore. It also assumes Rs 1.75 lakh crore to be scooped up from divestment. The Fiscal Responsibility and Budget Management Act will also be amended to achieve a fiscal deficit of 4.5 per cent of GDP by 2025-26 only.

The rating agency said the fiscal deficit target of 6.8 per cent for 2021-22 tries to strike a balance between supporting growth and a modest deficit reduction, but improvements in tax compliance and monetisation targets may be difficult to achieve. Besides, it said the government has limited room to reduce spending without further weakening growth, and nominal GDP growth will remain critical for future deficit reduction.

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