Moody’s Thursday said its credit view on India will depend on policies of the new government and maintained that it expects greater policy emphasis on supporting low incomes. Fitch Ratings’ Asia-Pacific Sovereigns team said that of particular importance from a credit perspective will be the extent of the next government’s efforts to improve India’s “weak fiscal finances”, given that “fiscal consolidation stalled under the BJP in recent years”, and its campaign promise to support farmers’ incomes has added to spending pressure.
“Any credit implications of the outcome of India’s general election will be determined by the policies adopted by the government in the next few years. These policies are yet to be formulated,” Moody’s Investors Service VP Sovereign Risk Group William Foster said. Moody’s expects the broad push towards fiscal consolidation to remain, although with greater policy emphasis on supporting low incomes, Foster added.
As per the trend, BJP-led NDA will form the government at the Centre for the second successive term with absolute majority. In 2017, the rating agency upped India’s rating to ‘Baa2’ from ‘Baa3’, changing outlook to ‘stable’ from ‘positive’, and said reforms would help stabilise rising levels of debt.
Deviating from the fiscal consolidation path as per the Fiscal Responsibility and Budget Management (FRBM) Act, the government in February’s Interim Budget pegged the fiscal deficit for 2019-20 at 3.4 per cent of GDP, as against the original target of 3.1 per cent. In 2018-19, the fiscal deficit was 3.4 per cent of GDP.
Thomas Rookmaaker, director in Fitch Ratings’ Asia-Pacific Sovereigns team said “The BJP’s apparent landslide victory marks an easing of political uncertainty and is likely to improve business sentiment and the outlook for private investment. We expect the government to remain reform-minded, as the BJP’s manifesto highlighted the aim to improve the business environment and governance standards, strengthen infrastructure, and stimulate the manufacturing sector through a new industrial policy”.
Fitch said another area of potential reforms is to enhance the efficiency and effectiveness of government administration, and the legal and judiciary system. “Of particular importance from a credit perspective will be the extent of the next government’s efforts to improve India’s weak fiscal finances. Fiscal consolidation stalled under the BJP in recent years, and its campaign promise to support farmers’ incomes has added to spending pressure. Fitch expects the fiscal deficit to remain manageable in the next few years, but we have seen little indication so far that the government will pursue significant deficit reduction of the order needed to meet the general government debt ceiling of 60 per cent of GDP by March 2025 …”