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Ahead of Budget 2016, Moody’s says India remains ‘vulnerable to economic shocks’

Wed February 24 2016, 4:37 pm
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    With just a few days to go for the presentation of the Union Budget 2016 by FM Arun Jaitley, Moody's Investors Service on Tuesday said India is vulnerable to economic shocks and the country's fiscal position will remain weaker than other emerging economies in the near term even if fiscal consolidation under the PM Narendra Modi led government continued on course. (Reuters)

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    In a statement Moody's said the transmission will depend on a range of factors like the effectiveness of the monetary policy framework in maintaining inflation at moderate levels could be tested this year.

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    Union Budget 2016: "The importance of the upcoming budget lies in its message on the government's fiscal consolidation plans. Even if the budgetary consolidation continues, India's fiscal metrics will remain weaker than rating peers in the near term, because of the relatively high level of India's state and central government deficits and debt," Moody's said in a report. (Reuters)

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    Union Budget 2016: "But at around 63.8 percent of GDP, India's government debt ratio remains high compared to the median of 49.5 percent for Baa3-rated peers. Without continued fiscal consolidation, India's government finances will continue to compare poorly to peers," it added. The fiscal deficit for 2014-15 touched 4.1 percent of the gross domestic product, while the government has targeted at containing it at 3.9 percent and 3.5 percent of GDP for this fiscal and the next, respectively. (Reuters)

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    Union Budget 2016: "The budget will reveal whether and how the government intends to maintain the trend of modest fiscal deficit reduction of the past few years," the Moody's report said. Moody's said the fiscal weakness was partly from structural factors. Lower per-capita incomes of around $1,700 limit the government's tax base and raise pressure for subsidies and development spending. (Reuters)

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    Union Budget 2016: "Moreover, interest payments absorb almost a fifth of Indian government revenues, a consequence of high debt, which we estimate at 63.8 percent of GDP in fiscal 2016, down from 83.1 percent in fiscal 2005. This restricts the government's fiscal flexibility," Moody's said. (Reuters)

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    Union Budget 2016: Noting that the current growth environment complicates fiscal consolidation, Moody's said India's impressive growth rate that outperformed similarly rated sovereigns, was accompanied last year by subdued rural demand owing to poor monsoons, and weak corporate profitability with pricing power staying low. "For instance, despite a robust GDP growth above 7 percent in 2015, rural demand and corporate profitability remained subdued, weighing on tax revenues," it said, adding that government tax revenue growth has cooled. (Reuters)

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