India’s government will face challenges meeting its fiscal deficit target next year because of new fiscal spending and no new policies to increase revenue, global rating agency Moodys said in a note. The rating agency called the slippage in deficit target a credit negative for India.
In its interim budget, the government said it had failed to maintain fiscal deficit at 3.3% of GDP and had slipped to 3.4% in the fiscal year ending March 2019.
Moody’s said the slippage was expected but raised doubts on how the government will maintain its budgeted target for fiscal 2020.
“Ongoing slippage from the government’s budgeted fiscal deficit targets over the past two years, and our expectation that the government will face challenges meeting its target again this coming fiscal year (ending March 2020) does not bode well for medium-term fiscal consolidation. We view this continued slippage as credit negative for the sovereign,” Moody’s said.
India’s high debt burden remains its biggest credit challenge and is not expected to diminish rapidly. India’s low-income levels lead to significant development spending needs and constrain the scope of tax base broadening, the rating agency said.
“No new policies to increase revenues were announced, while a number of expenditure measures were announced that will increase outlays and put pressure on the government’s ability to meet its fiscal deficit target. Increased fiscal outlays as a result of the introduction of a new direct income support scheme for farmers and subsidized agriculture loans are likely to boost the rural economy through consumption in the near-term but will have a fiscal cost,” Moody’s said.