Budget 2018, the last Budget of the current government ahead of the General Elections in 2019, was touted as pro-farmer and pro-poor Budget, Credit rating agency Moody’s has said that the Budget will benefit the corporate, infrastructure and insurance sector, and that slight fiscal slippage has no material impact on the country’s overall fiscal strength.
Moody’s lauded the government’s huge allocation in the infrastructure sector, saying that it will benefit from the boost in spending, and the continued focus on public investment will also help “galvanise India’s upturn in capital spending”. The Narendra Modi government allocated highest ever funds to the Railways and increased the overall infrastructure funding by over 20% from the previous year. The Railways received a total funding of Rs 1.49 lakh crore, up from previous fiscal year’s Rs 1.31 lakh crore, while the total allocation for the roads sector was up by 6.7% to Rs 89,544 crore from Rs 83,900 crore in the previous year.
As the government announced the world’s largest Centre-funded health care programme to cover 10 crore families, Moody’s said that the insurance market will benefit from the launch of the national health scheme. “The insurance, and in particular non-life market, is set to benefit from the growth prospects provided by the widening of universal health insurance cover,” Moody’s said. Besides, the merger of the three state-owned insurers will benefit the sector as well.
While the concerns over the introduction of Long Term Capital Gains (LTCG) taxes led to a bloodbath on the stock market, in which Sensex nosedived 840 points on Friday, Moody’s said that relaxing restrictions on the ability of financial intermediaries to invest in lower-rated corporate bonds are credit positive and will benefit the corporate sector. To encourage raising funds from the bond market, the Finance Minister urged regulators to move from ‘AA’ to ‘A’ rating for investment eligibility, a Finance Ministry statement on Budget said.
As the Finance Ministry also announced fiscal slippage on account of lower GST collections and delay in spectrum allocation from 3.2% to 3.5% in 2017-2018; and fixed 3.3% target for 2018-2019, Moody’s said it will not impact India’s fiscal health, even as another rating agency Fitch snubbed India for missing the target. “The revised fiscal consolidation path is modestly shallower than the previous roadmap, but does not fundamentally alter India’s overall fiscal strength,” Moody’s Vice President William Foster said.
Moody’s also lauded India’s effort to recapitalise banks and reduce the medium-term target of government debt-to-GDP ratio to 40%, which is supportive of the sovereign credit profile. However, Moody’s flagged concerns over “ambitious revenue assumptions”. It said, “The projected expenditure restraint and strong revenue growth are likely to be broadly achieved, although some measures such as the rule guiding increases in Minimum Support Prices (MSPs) and ambitious GST revenue targets could result in some further slippage.”
Watch Video: Budget 2018: 10 New Facts On The Indian Economy
In November last year, Moody’s in a surprise move upgraded India’s sovereign rating for the first time in 13 years from Baa2 to Baa3 on back of structural reforms like the implementation of the GST.