The focus of the Union budget on increasing investment spending, financial sector reforms and asset sales would help boost growth and provide broad credit support, but the weakness of India’s fiscal position would remain a major credit challenge relative to its peers, Moody’s Investors Service said.
The budget provides for a reduction in the central government budget deficit to 6.8% of GDP for fiscal year 2022, compared to an estimated 9.5% for fiscal year 2021.
“We previously expected a smaller central government deficit target of around 5.5% of GDP for fiscal 2022, compared to around 7.5% of GDP for fiscal 2021,” Moody’s said on Wednesday.
“However, compared to previous budgets, the gap between our forecasts and those of the government largely reflects increased transparency on grant spending and more credible overall assumptions,” he added.
The rating agency said the widening deficit in fiscal 2021 was almost entirely due to spending to support Indian households and the economy from the pandemic shock.
“Given India’s very high debt burden … this gradual pace of consolidation will prevent any significant strengthening of the government’s fiscal position in the medium term, unless nominal GDP growth picks up sustainably to reach historically very high rates, ”the rating agency said. added.