Global ratings agency Moody’s Investors Service has opined that achieving the “competing budgetary goals” of lower fiscal deficit, higher growth and larger income support to farmers and the other needy sections of the society will be challenging.
Despite the income support measures announced in the Budget Friday, the economy is likely to grow more slowly and there is an additional risk of the fiscal deficit target of 3.3 percent being missed if tax collection underperform, the agency warned.
The government will have to rely on one-off revenue such as disinvestments and transfers from the central bank, and off-budget spending to achieve the headline fiscal deficit targets, it said.
Fiscal deficit is one of the key metrics tracked by global rating agencies for assessing the sovereigns for its impact on inflation and importance from a general macroeconomic stability perspective. In the past, agencies have warned of downgrading the country’s ratings because of fiscal profligacy.
Moody’s said the budget eyes lower fiscal deficit target while maintaining its support for growth and income.
“Achieving these competing goals will be very challenging. We expect the economy to grow relatively slowly, despite the government’s income support measures,” it said in a statement.
From an expenditure perspective, the maiden Budget presented by Nirmala Sitharaman, the first woman finance minister, has a Rs 70,000 crore bank recapitalisation proposal, in addition to funding an expansion of support for farmers, a new pension scheme and relief for small taxpayers.
The agency concedes that this will support growth by encouraging the flow of credit to the economy, but warned that such a move will add to government debt.
The government is aiming to lower deficit to 3.3 percent in FY20 from 3.4 percent target set earlier.
The agency said to achieve this, the government will have to rely on one-off disinvestment income, higher taxes on the rich, and increased excise duties on petrol, diesel, precious metals and tobacco products.
“There’s a risk of missing the fiscal deficit target if income from tax revenue underperforms projections, as it did last year,” the agency warned.