Budget 2018: Govt revising fiscal deficit target to 3.5% won't impact overall economic growth, says Moody's
Moody's says medium-term target to reduce central govt debt-to-GDP ratio to 40 percent is supportive of sovereign credit profile
New Delhi: The Budget for 2018-19 strikes a balance between fiscal prudence and growth, and a "slight" slippage in fiscal deficit has no material impact on overall economic strength. The government has revised its 2018-19 fiscal deficit projections to 3.3 percent of GDP and for the current fiscal to 3.5 percent of GDP, against original targets of 3 percent and 3.2 percent, respectively.
"The revised fiscal consolidation path is modestly shallower than the previous roadmap, but does not fundamentally alter India's overall fiscal strength," says William Foster, Vice President-Senior Credit Officer at Moody's. The medium-term target to reduce the central government debt-to-GDP ratio to 40 percent is supportive of the sovereign credit profile, Foster said. Moody's in a statement said India's budget for the fiscal year ending March 2019 strikes a balance between fiscal prudence and growth.
"Slight slippage in the budget deficit targets has no material impact on the country's overall fiscal strength and is in line with Moody's expectations," it said. The budget benefits corporates as well as infrastructure and insurance sectors, said Joy Rankothge, Vice President -- Senior Analyst. Moody's expects that the government will meet next year's deficit target, based on achievable budget assumptions and demonstrated commitment to fiscal prudence.
"However, some ambitious revenue assumptions and uncertainty about some spending items could result in a shortfall to overall fiscal consolidation," Moody's said. "The projected expenditure restraint and strong revenue growth are likely to be broadly achieved, although some measures such as the rule guiding increases in Minimum Support Prices (MSPs) and ambitious GST revenue targets could result in some further slippage," Foster said.
The formal adoption -- as stated by Finance Minister Arun Jaitley when he announced the budget -- of key recommendations by the Fiscal Responsibility and Budget Management Committee (FRBM) as "credit positive". These include the objective to bring down the central government debt-to-GDP ratio to 40 percent (from about 50 per cent today) and use of the fiscal deficit target as the government's key operational parameter, Moody's said.
For most of India's corporates, the budget's measures of higher rural spending, lower corporate taxes, and relaxing restrictions on the ability of financial intermediaries to invest in lower rated corporate bonds are credit positive, it added. The infrastructure sector will benefit from a boost in spending and the government's continued focus on public investment will also help galvanise India's upturn in capital spending, Moody's said.
Finally, the insurance market will benefit from the launch of a national health scheme and the merger, as well as listing, of three state-owned insurers. "The insurance, and in particular non-life market, is set to benefit from the growth prospects provided by the widening of universal health insurance cover," it added.
The median forecast from over 40 economists polled 24-29 January was for the government to borrow 3.2 percent of gross domestic product (GDP) in fiscal 2018-19.
Budget 2018: Govt breaches fiscal deficit target of 3.2% for FY18, pegs it higher at 3.5%: Arun Jaitley
The fiscal deficit target has been fixed at 3.3 percent for 2018-19 as against Fiscal Responsibility and Budget Management Act target of 3 percent
The government is aiming to contain fiscal deficit for the current fiscal at 3.2 percent of GDP