The Union Budget’s focus on higher capital expenditure, financial sector reforms and asset sales would help to stimulate growth and supply broad-based credit support, but India’s weak fiscal position would remain a key credit challenge compared with its rating peers, Moody’s Investors Service said.
The budget projects a narrowing of the central government’s fiscal deficit to 6.8% of GDP in fiscal 2022 from an estimated 9.5% in fiscal 2021.
“We previously expected a smaller central government deficit target of about 5.5% of GDP for fiscal 2022 down from around 7.5% of GDP in fiscal 2021,” Moody’s said on Wednesday.
“However, compared with previous budgets, the gap between our forecasts and the government’s largely reflects increased transparency on subsidy spending and more credible overall assumptions,” it added.
The ratings agency said the widening of the deficit in fiscal 2021 was driven almost entirely by expenditure to support Indian households and the economy from the pandemic shock.
“Given India’s very high debt burden...this gradual pace of consolidation will prevent any material strengthening in the government’s fiscal position over the medium term, unless nominal GDP growth were to pick up sustainably to historically very high rates,” the credit ratings agency added.
