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India to face challenge in achieving FY21 fiscal deficit target: Moody's

Rating agency says five-fold increase in deposit insurance to Rs 5 lakh from Rs 1 lakh earlier is "credit positive" for banks, as it will raise depositor confidence

twitter-logo BusinessToday.In   New Delhi     Last Updated: February 4, 2020  | 21:28 IST
India to face challenge in achieving FY21 fiscal deficit target: Moody's
Moody's Investors Service says said any immediate strengthening in India's public finances is unlikely as pressure on growth persists

Days after Modi government narrowed the Budget 2020-21 target on fiscal deficit to 3.5 per cent of GDP from 3.8 per cent in FY20, the rating agency Moody's Investors Service has said any immediate strengthening in India's public finances is unlikely as pressure on growth persists. The rating agency asserts India's government will face challenges in achieving its deficit target for the fiscal year ending March 2021 amid weak GDP growth and lower revenue collection.

"While the latest budget targets a narrower deficit, prolonged weakness in nominal GDP growth in India, combined with lower revenue collections, has dampened the outlook for fiscal consolidation, raising the risk that the debt burden may not stabilize," says Gene Fang, Moody's Associate Managing Director.

Fang says India's debt burden was sensitive to nominal GDP growth. "In light of India's weak fiscal health compared with its rating peers, any slippage in debt reduction will be credit negative," adds Fang.

Meanwhile, the rating agency says the five-fold increase in deposit insurance to Rs 5 lakh from Rs 1 lakh earlier is "credit positive" for banks, as it will raise depositor confidence and bank funding, particularly across small and medium-sized private sector and cooperative banks.

The rise in public infrastructure spending and tax exemptions for sovereign wealth funds are also "credit positive" for infrastructure companies, as public capital outlays on highways and railways would increase modestly, says Moody's. Additionally, the 100 per cent tax exemption on income and capital gains for infrastructure investment made by sovereign wealth funds will attract more long-term foreign capital, it says. The rating agency also termed "quicker debt recovery" and "additional interest deduction" on home loans "credit positive".

FM Sitharaman's Budget 2020 vowed to boost the income of Indians and their purchasing power amid a strong call to revive domestic economic growth.

Also read: India's GDP is pretty low; V-shaped turnaround unlikely: Uday Kotak

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