Budget a mixed bag of credit implications for corporates: Moody's

New Delhi: India's Budget for 2012-13 lacks new solutions to address the fiscal constraints the government is facing and may weaken its credit profile, global credit rating agency Moody's said today.

Dependence on corporate tax revenue and vulnerability to commodity prices and exchange rates weakens the government's credit profile and lack of specific policies in the Union Budget to address these weaknesses is "credit negative", Moody's said in a research note.

Reuters

The revised fiscal deficit target of 5.9 percent of GDP for the year confirms "significant fiscal slippage" and is a credit negative for India, it said.

Moody's currently has a credit rating of BAA3 on India with a stable outlook.
Economists are also of the view that the 5.1 percent fiscal deficit target for the next fiscal is an uphill task considering the absence of a clear fiscal road map and the still uncertain global environment.

"In the absence of new policy initiatives, during the year, a combination of improved GDP growth and corporate profitability, lower global commodity prices as well as exchange rate stability to improve fiscal performance and meet the fiscal 2012-13 deficit target of 5.1 per cent of GDP,  Moody's said.

The general perception of the Budget is that it lacked new ideas for the stalled economic reform agenda and failed to address the bloated fiscal deficit condition.

Moody's said the government did not note specific measures to achieve this goal and unless subsidy cuts and fuel price increases are introduced in the next few months, expenditure targets are likely to exceed yet again in 2012-13.

Further, the budget proposal to expand the number of services that are taxed will yield new revenue sources, but will not make a meaningful effect on overall revenues as service taxes contributes only 5 per cent of current tax
revenues.

The budget is a mixed bag of credit implications for corporates, Moody's said.

PTI