India’s Budget is tilted towards supporting growth and the fiscal deficit target of 6.8 per cent for 2021-22 is realistic, Moody’s Investors Service said on Thursday.
With regard to India’s finances, Moody’s said weak fiscal position will remain a key credit challenge in 2021.
It said the government’s fiscal deficit for 2020-21 and 2021-22 should be lower than projected, supported by stronger revenue generation in ongoing March quarter and higher nominal GDP growth in the next fiscal year.
“India Budget tends to tilt a little bit in favour of support for growth. The deficit in Budget for FY’22 was above what we expected, but nevertheless we think that the deficit target is a realistic one.
“The government has incorporated a conservative assumption of nominal
GDP growth and we think most revenue assumptions conservative, with the possible exception of monetisation expectations pegged in Budget,” Moody’s Associate Managing Director (Sovereign Risk) Gene Fang said.
Wide fiscal deficits combined with lower real and nominal GDP growth over the medium term will constrain the government’s ability to reduce its debt burden, Fang said in an online conference organised by Moody’s and its affiliate ICRA on ‘India Credit Outlook 2021’.
Moody’s said the prospects for fiscal consolidation remain weak particularly given the government’s mixed track record of implementing revenue-raising measures.