Difficult for Indian govt to meet 3.4% fiscal deficit target in FY20: Moody's
With higher spending and low revenue growth, Moody's Investors Service has said that the Indian government will find it difficult to meet the fiscal deficit target of 3.4% in 2019-20 (FY20). Observing that government's debt is ‘stubbornly high’ as a percentage of Gross Domestic Product (GDP), Moody's said it could be brought down only if the Centre sticks to the fiscal consolidation path. Deviating from the path laid down in the Fiscal Responsibility and Budget Management (FRBM) Act, the government has pegged the fiscal deficit for the next financial year at 3.4% of GDP, as against the original target of 3.1%.
The rating agency said ‘while the government's growth assumptions appear reasonable, we think the government will continue to face challenges in meeting its fiscal targets, primarily due to structural increases in spending and difficulties in raising revenue further’. He further said the 3.4% fiscal deficit target for the year ending March 2020 is wider than expected, largely driven by increased spending to provide income support to small farmers and tax rebates ahead of the general elections in April-May this year. The Interim Budget for 2019-20 doled out a scheme under which farmers holding up to 2 hectares of land would get an annual payout of Rs 6,000 -- a move intended to benefit about 12 crore farmers, among other measures for middle-class taxpayers. However, there was a 0.1% slip in the fiscal deficit estimate for the current financial year to 3.4%.
Talking about India risks a rating downgrade following the breach in fiscal deficit target, Moody's said the country's 'Baa2' rating has a 'Stable' outlook, which indicates a balance of upside and downside risks. It said India's government debt remains stubbornly high as a percent of GDP, but it's mostly domestically funded with a relatively long-dated maturity structure. India's economic growth also offers the potential to bring debt/GDP down, but only if the medium-term fiscal objectives of the FRBM are realized. As per the FRBM Act, the debt-to-GDP ratio was to be brought down to 40% by 2024-25 from 50.1% in 2017-18.
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