MUMBAI (Reuters) - India’s budget for the next fiscal year offers a “realistic” plan to meet the country’s fiscal deficit target, and should be a credit positive for its sovereign ratings, Moody’s Investor’s Service said in a report on Monday.
India’s fiscal consolidation plans could pave the way for monetary easing, thus helping revive economic growth, Moody’s also said about the budget unveiled last week.
Still, the credit agency noted India would continue to find it challenging to meet some of the assumptions about growth, as well as revenue and spending, made in the budget.
Moody’s is the only one of the three major credit agencies, to have a “stable” outlook on India’s ratings after Standard & Poor’s and Fitch cut the outlook to “negative” last year.
“This plan of modest fiscal consolidation is credit positive for the sovereign because against a backdrop of subdued GDP growth and upcoming elections, it is a realistic effort to correct India’s macroeconomic imbalances,” Moody’s said.
India unveiled a 2013/14 budget on Thursday that seeks to meet its fiscal deficit target of 4.8 percent of gross domestic product by raising revenue to fund a dash for growth ahead of elections due by next year.
Moody’s said India’s “sharp” spending cuts helped it reduce its fiscal deficit for the current financial year ending in March to 5.2 percent of GDP, and it will need to show the same commitment for the coming fiscal year.
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The credit agency said the 4.8 percent deficit target should have suggested a more aggressive fiscal consolidation effort than the one unveiled on Thursday, but added that would have been unrealistic.
“An aggressive fiscal consolidation effort would have been difficult to achieve given that low incomes significantly constrain the government’s revenue base and necessitate social expenditures,” Moody’s added.
Still, the agency warned the budget’s assumptions were still “optimistic,” adding that “achieving such targets will be challenging.”
Moody’s said India has usually raised less money from selling stakes in public companies than first targeted, while GDP growth, tax revenue and spending on subsidies have tended to overshoot budget targets in the past seven years. (Reporting by Rafael Nam and Shamik Paul; Editing by Kim Coghill)