INDIA’S WEAK FISCAL POSITION KEY CREDIT CHALLENGE: MOODY’S

The pr ospect of fiscal consoli dation in India r emains weak larg ely due to the go vernment's "mix ed trac k record" w hen it came to implementing r evenue-raising measur es, Moody's Investors Service said today.

The ne w fiscal consolida tion roadmap, announced by Finance Minister Nirmala Sitharaman earlier this month, targets a fiscal deficit of under 4.5% of GDP by 2025-26 (Apr-Mar).

This, Mood y's said toda y, meant an annual cut of roughly 50 basis points in the fiscal deficit, on an average, for four years.

"Given India's v ery hig h debt burden, this g radual pace of consoli dation wi ll pr event an y material strengthening in the government's fiscal position o ver the medium ter m, unless nominal GDP g rowth picks up sustainably to r each muc h higher rates than h istorically r ecorded," Moody’s added.

As such, India's weak fiscal position

is expected to r emain a "k ey cr edit challenge" in 2021. Mood y’s ra tes India at 'Baa3' with a negative outlook.

For the cur rent and next y ear, however, Mood y's expects India's fiscal deficit to be better than that estimated by the go vernment in the Budg et for 2021-22 on account of str onger r evenue generation in Jan-Mar and higher nominal GDP growth next year.

The Budget revised this year's fiscal deficit to 9.5% of GDP, and pegged it at 6.8% for next ye ar .

Both figur es w ere w ell a bove consensus expecta tions. Both Mood y's and its Indian af filiate ICRA expect a considerable r ebound in g rowth in 2021-22 on the bac k of higher go vernment spending and a pic k-up--albeit uneven--in consumption.

Moody's now expects India's GDP to grow 13.7% next year as against a contraction of 7% or so this year.

"We have tried to incorporate some unexpected pickup in activity that we have seen more recently into the revision," Gene Fang, a Moody's associate managing dir ector said in a conference call.

ICRA, on the other hand, has a lo wer f orecast of 10.5% f or Indi a's GDP growth next year, with the push in activity coming fr om sectors suc h as recreation, travel, tourism, and entertainment.