India’s fiscal consolidation trend intact; to see strong revenues: Moody’s

Moody’s Investors Service on Tuesday said that the trend of gradual fiscal consolidation remains intact for India. It also said that going forward the country will see strong revenue performance and debt stablisation.

India’s ‘Baa3’ sovereign rating balances its strength of relatively high economic growth and weakness of one of the most highly indebted emerging market sovereigns said Moody’s Investors Service Senior Vice President Christian de Guzman.

The country’s healthy financial system is reflected in deleveraging by Indian corporates, he added.

“We expect that India is going to be the fastest growing G-20 economy next year… (but) high inflation pose a downside risk to India’s growth as households and businesses have less purchasing power,” Guzman said in a Moody’s virtual event ‘Sovereign Deep Dive’.

Moody’s earlier this month cut India’s growth projection for 2022 to 7 per cent, from 7.7 per cent projected earlier.

 It expects growth to decelerate to 4.8 per cent in 2023 and then to rise to around 6.4 per cent in 2024. The Indian economy grew 8.5 per cent in 2021.

Moody’s projected GDP growth of the G-20 economies to decelerate to 1.3 per cent in 2023. It is significantly lower than its previous estimate of 2.1 per cent.

He said further improvement with regard to fiscal situation and a faster than expected pace of fiscal consolidation leading to substantial debt reduction would translate into a positive rating pressure on India.

Moody’s had in October 2021 raised India’s sovereign rating outlook to ‘stable’, from ‘negative’, while affirming the ‘Baa3’ rating — which is the lowest investment grade, just a notch above junk status.

“We have seen over the past couple of years that there is some revenue bouyancy … Revenue performance has been relatively strong. We think the trend of gradual fiscal consolidation does remain intact… There is going to be a stabilisation of debt… We don’t see debt creeping back significantly again,” Guzman said.

India’s debt ratio is projected to be 84 per cent of its GDP by the end of 2022, which is higher than many emerging economies.

India’s fiscal deficit, the gap between expenditure and revenue, is projected to come down to 6.4 per cent in the current fiscal ending March 2023, from 6.71 per cent in 2021-22 fiscal year.

The government has set a consolidation target under which it aims to reach a fiscal deficit level below 4.5 per cent by 2025-26.

“We don’t think rupee depreciation is going to bring material deterioration in the government’s ability to service foreign currency debts,” Guzman said. 

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