India faces continued fiscal challenges, despite lower deficit target: Moody's

New Delhi: Weak growth prospects for India will complicate the government's fiscal consolidation efforts, weighing on the sovereign's credit quality, Moody's Investors Service said on Tuesday. The 2019-20 Budget presented in Parliament last week projected to contain fiscal deficit at 3.3 percent of GDP, lower than 3.4 percent estimated in the interim Budget. It also projected a more gradual decline in government debt. "Weak growth prospects for India (Baa2 stable) will complicate the government's fiscal consolidation efforts, weighing on the sovereign's credit quality," Moody's said in a statement. [caption id="attachment_2545752" align="alignleft" width="380"]

Representational image. Reuters.[/caption]The rating agency said delivering on fiscal consolidation and raising incomes will be extremely challenging for India's authorities, particularly since growth is likely to remain weak over the coming year. It said budget announcements are credit positive for public sector banks, non-bank finance companies (NBFCs), infrastructure sector, property developers, some domestic producers and securitisation transactions. The Rs 70,000 crore capital infusion into public sector banks and a temporary credit guarantee facility to alleviate tight liquidity for NBFCs are measures that are credit positive for the relevant entities and should encourage the flow of credit to the economy and support growth, Moody's said. The hike in customs duties on certain imported products will increase the competitiveness of domestic producers, while new incentives for the purchase of affordable homes will be credit positive for Indian property developers, it added.