Global ratings agency Moody’s sees India’s fiscal deficit at around 5% of the GDP in the next fiscal (2012-13), which is less than the expected level for the current fiscal, but more than the Budget estimate of 4.6%.
Replying to FE queries, Moody?s senior analyst Atsi Sheth said, ?…based on our assumptions as to likely revenue and expenditure strategies, and our forecasts of GDP growth, we expect a central government deficit of around 5% of GDP in FY 2012-13.?
She, however, said there is no pressure on India sovereign rating as Moody?s Baa3 rating incorporates the possibility that India?s budget deficit and government debt will remain higher than those of similarly rated peers due to the country?s relatively low revenue base and rising infrastructure and social spending commitments. Baa3 means medium grade with moderate credit risk.
The rating agency said that although both the savings and GDP rate have declined in the recent years, they still remain well above the median for Baa3 rated countries. ?This aspect of India?s macro-economic profile compensates for the weaker fiscal profile in the near term,? Sheth said.
However, she warned that high debt and deficits cannot be sustained indefinitely, as they will ultimately compromise the strength of the economy. Besides large government debt and deficits, inadequate physical and social infrastructure, inefficiencies in the distribution of government benefits (ranging from subsidised food to employment) are the challenges that are incorporated into the rating.
The country’s fiscal deficit has breached the Budget estimate for the current fiscal. During April-January this year, the deficit stood at R4.34 lakh crore, which is 105% of the target for the entire fiscal.
In the beginning of 2011-12, the government had estimated deficit at 4.6% of the GDP, but now it seems it could rise up to 6% of the GDP. According to Moody’s, the fiscal deficit could rise to 5.6% of the GDP this fiscal.
The higher deficit is mainly on account of slowdown in net revenue collection, following higher refunds and moderation in economic growth rate. The revenue deficit has also breached the target estimated for the current fiscal. It stood at R3.34 lakh crore till January, which is 108% of the total target. The revenue deficit is pegged at 3.4% of the GDP this fiscal.