India’s fiscal consolidation remains intact, will see strong revenue performance: Moody's

23 Nov 2022 Evaluate

Expressing optimism over India’s situation, Moody's Investors Service has said the trend of gradual fiscal consolidation remains intact for India and going forward the country will see strong revenue performance and debt stablisation. Moody's Senior Vice President Christian de Guzman said India's 'Baa3' sovereign rating balances its strength of relatively high economic growth and weakness of one of the most highly indebted emerging market sovereigns. The country's healthy financial system is reflected in deleveraging by Indian corporates. He said ‘We expect that India is going to be the fastest growing G-20 economy next year... (but) high inflation pose a downside risk to India's growth as households and businesses have less purchasing power’.

Guzman said further improvement with regard to fiscal situation and a faster than expected pace of fiscal consolidation leading to substantial debt reduction would translate into a positive rating pressure on India. he also said ‘We have seen over the past couple of years that there is some revenue bouyancy ... Revenue performance has been relatively strong. We think the trend of gradual fiscal consolidation does remain intact... There is going to be a stabilisation of debt... We don't see debt creeping back significantly again’. Talking about weaker rupee would put a strain on India, Guzman said majority of India's debt is in local currency, and foreign currency debt is on near-concessional basis from multilateral or bilateral development partners and hence it is on relatively generous terms. He added ‘We don't think rupee depreciation is going to bring material deterioration in the government's ability to service foreign currency debts’.

Moody's had earlier this month cut India's growth projection for 2022 to 7 per cent, from 7.7 per cent projected earlier. It expects growth to decelerate to 4.8 per cent in 2023 and then to rise to around 6.4 per cent in 2024. The Indian economy grew 8.5 per cent in 2021. It projected GDP growth of the G-20 economies to decelerate to 1.3 per cent in 2023, significantly lower than its previous estimate of 2.1 per cent. Moody's had in October 2021 raised India's sovereign rating outlook to 'stable', from 'negative', while affirming the 'Baa3' rating -- which is the lowest investment grade, just a notch above junk status. Besides, the government has set a consolidation target under which it aims to reach a fiscal deficit level below 4.5 per cent by 2025-26.

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