Global rating agency, Moody’s, applauded Finance Minister P Chidambaram's Budget saying that it pursues realistic fiscal consolidation path and is credit positive for the country’s sovereign rating. Giving thumbs up to the Union Budget 2013, Moody’s said that FY14 Budget is proposed to bring down the fiscal deficit to 4.8 percent of the GDP from 5.2 percent in the revised estimates for the current financial year.
As per Moody’s, against a backdrop of subdued GDP growth and upcoming elections, it is a realistic effort of government to correct India's macroeconomic imbalances because large fiscal deficits constrain credit by fuelling inflation, crowding out private-sector access to domestic savings and widening the current account deficit. Moody's has assigned BAA3 rating to India, which indicates investment grade rating with stable outlook.
Moody’s, in its report said that fiscal consolidation proposed by Chidambaram could also pave the way for monetary easing, which would revive growth. However, the extent of easing would depend upon the assessment of the RBI on the commitment of the government to contain fiscal deficit in the Budget. Further, it stated that the Indian government will need a similar commitment and implementation capacity to meet its fiscal 2014 deficit target of 4.8 percent of GDP. By adding further Moody’s said a more aggressive fiscal consolidation would have been unrealistic.
The FY14 Budget projects nominal GDP growth (after taking into account inflation) of 13.4 percent and total revenue growth of 23.4 percent, including a doubling of revenue from divestments. The Budget also anticipates total expenditure growth of 16.4 percent, with 29 percent growth in planned spending and a 10 percent reduction in subsidy spending. Regarding this, Moody's said that achieving such targets will be 'challenging'.
However, as per the rating agency, there are still no indications that GDP growth will accelerate to the extent the government expects and the subsidy bill is likely to overshoot Budget estimates, as it has done the past seven years. On disinvestment target, it said, India's divestment revenues have generally been lower than what the government has budgeted.
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