Budget credit negative, lacks solutions: Moody's

MUMBAI Tue Mar 20, 2012 1:08am IST

1 of 2. An employee counts currency notes at a cash counter inside a bank in Agartala, January 29, 2010.

Credit: Reuters/Jayanta Dey/Files

Related Topics

MUMBAI (Reuters) - India's budget for 2012/13 lacks new solutions to address its fiscal constraints and is credit negative for the sovereign, ratings agency Moody's Investors Service said, after the government set modest targets to rein in a bloated deficit.

"A dependence on corporate tax revenue and vulnerability to commodity prices and exchange rates weakens the government's credit profile," analysts at Moody's said in a statement on Monday.

"And the fiscal 2012/13 budget's lack of specific policies to address these weaknesses is credit negative."

In the absence of new policy initiatives, it will take a combination of improved economic growth, corporate profitability, lower global commodity prices and exchange rate stability to meet the fiscal deficit target in 2012/13, Moody's said.

"Unless subsidy cuts and fuel price increases are introduced in the next few months, expenditure targets will likely be exceeded yet again in fiscal 2012/13," Moody's said, adding that the budget did not elaborate on measures to cap subsidy spending to 1.7 percent of GDP in the next three years.

Moody's currently has a credit rating of BAA3 on the sovereign with a stable outlook.

India's beleaguered government avoided bold reforms in its annual budget on Friday, opting for cautious steps to shore up growth and unveiling only a smattering of anti-deficit measures including an increase in services and excise taxes.

The government set a fiscal deficit target of 5.1 percent of GDP in 2012/13 fiscal year beginning April.

"The budget proposal to expand the number of services that are taxed will yield new revenue sources, but a meaningful effect on overall revenue ratios will take several years since service taxes contribute only 5 percent of current tax revenues," Moody's said.

(Editing by Aradhana Aravindan)

FILED UNDER:

Reuters Showcase

GDP Growth

GDP Growth

India revises up 2013/14 GDP growth to 6.9 percent.  Full Article 

Adani Restructuring

Adani Restructuring

Adani hives off power, ports businesses to boost growth.  Full Article 

Bank of Baroda

Bank of Baroda

Q3 net profit down 69 pct on higher provisions  Full Article 

Trading Fees

Trading Fees

BSE slashes fees in FX derivatives battle with NSE  Full Article 

SpiceJet Turnaround

SpiceJet Turnaround

SpiceJet board approves up to $243 mln share sale plan  Full Article 

Currency Market

Currency Market

RBI urges companies to hedge FX exposure  Full Article 

Banking Sector

Banking Sector

Banks say no room to cut lending rates, thwarting RBI easing  Full Article 

ICICI Results

ICICI Results

ICICI sets quarterly record profit as Q3 net rises 14 pct  Full Article 

Reuters Poll

Reuters Poll

RBI seen holding rates steady on Tuesday, minority of analysts expect cut  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage