Men hold a two thousand Indian rupee banknote for a photograph in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

India Faces Continued Fiscal Challenges, Despite Lower Deficit Target: Moody’s

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 Tuesday.

The 2019-20 Budget has projected India’s fiscal deficit at 3.3 percent of the gross domestic product, lower than 3.4 percent estimated in the interim budget. It also projected a more gradual decline in government debt.

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, Moody's said.

It said budget announcements are credit positive for public sector banks, non-bank finance companies, 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.

Bloomberg Quint

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