MUMBAI 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)
Trending On Reuters
HSBC Holdings Plc is shutting its private banking unit in India, marking the exit of another foreign bank from the cut-throat wealth management business in Asia's third-largest economy. Full Article