Budget 2018: After Finance Minister Arun Jaitley presented fixed the fiscal deficit target at 3.3% in FY19, global rating agency Moody’s Investor Service said that a “slight” slippage in fiscal deficit has no material impact on overall economic strength of the country.
Budget 2018: After Finance Minister Arun Jaitley presented fixed the fiscal deficit target at 3.3% in FY19, global rating agency Moody’s Investor Service said that a “slight” slippage in fiscal deficit has no material impact on overall economic strength of the country. The government’s fiscal deficit target for the fiscal year 2018-2019 at 3.3% is higher than previous year’s 3.2% target on account of shortfall in non-tax revenue due to deferment of spectrum auction, Finance Minister Arun Jaitley said. He also revised the fiscal deficit for the fiscal year for 2017-2018 upwards to 3.5% as against targeted 3.2%, which in absolute terms was about Rs 5.95 lakh crore. As the government receive the GST revenue only for 11 months in FY18, the fiscal deficit will widen. Arun Jaitley said that the revised estimate for FY18 is Rs 21.57 lakh crore as against estimated Rs 21.47 lakh crore. We take a look at why Moody’s does not see any material impact on the fiscal deficit slippage in the year.
Commitment to fiscal prudence
Moody’s said that India’s budget for the fiscal year ending March 2019 strikes a balance between fiscal prudence and growth. Moody’s expects that the government will meet next year’s deficit target, based on achievable budget assumptions and demonstrated commitment to fiscal prudence.According to William Foster, Vice President-Senior Credit Officer at Moody’s, the medium-term target to reduce the central government debt-to-GDP ratio to 40 per cent is supportive of the sovereign credit profile.
Infrastructure, insurance sector- big beneficiaries
The global firm sees infrastructure and the insurance sector as big beneficiaries of Budget 2018. Moody’s’ says that the infrastructure sector will benefit from a boost in spending and the government’s continued focus on public investment will also help galvanise India’s upturn in capital spending. The firm said that insurance market will benefit from the launch of a national health scheme and the merger, as well as listing, of three state-owned insurers. “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,” it added.
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Increase in MSP; high GST targets could lead to slippages
Moody’s notes that the increase in minimum support prices (MSP) announced for farmers in Union Budget 2018 and ambitious GST revenue targets could lead to further slippages. “However, some ambitious revenue assumptions and uncertainty about some spending items could result in a shortfall to overall fiscal consolidation,” Moody’s 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,” William Foster said.