Budget modestly credit positive for India: Moody's

Last Updated: Monday, July 14, 2014 - 18:40

New Delhi: Rating agency Moody's Monday said the Budget 2014-15 has outlined steps to support faster economic growth, but absence of detailed implementation plan makes it modestly credit positive for India.

"Unless the budget is followed by a more specific implementation plan, as well as additional measures to address macroeconomic imbalances, its credit effect will be modest," said Moody's Investors Service Senior VP Atsi Sheth.

Finance Minister Arun Jaitley presented his maiden budget last week in which he vowed to contain fiscal deficit at 4.1 percent this year and lower it to 3 percent by 2016-17.

"A smaller fiscal deficit would be credit positive since India's weakening public finances have fuelled inflation, raised domestic interest rates and heightened macroeconomic imbalances, constraining sovereign credit quality," she said.

The Moody's credit outlook report said the Budget did not outline specific revenue and expenditure measures to shrink the deficit, suggesting that various options are still under consideration.

"Lack of detail makes it difficult to assess the feasibility and sustainability of the fiscal consolidation effort," it added.

The budget includes measures to support faster economic growth, such as allowing greater foreign direct investment in insurance and defence, increasing spending on infrastructure, and introducing tax incentives for savings and investment.

"These policies are credit positive for the corporate and infrastructure sectors. However, their effect on overall GDP growth will be muted without a decline in inflation, interest rates and regulatory constraints on private investment," Seth said.

Moody's assigns a 'Baa3' rating on India, with a stable outlook.

India's economic growth is expected to improve to between 5.4-5.9 percent in the current fiscal, from 4.7 percent in 2013-14.


First Published: Monday, July 14, 2014 - 18:40

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