Budget 2019: With a number of steps leading to higher expenditure but no accompanying measures to raise revenue in the budget 2019, whether the government would be able to meet its fiscal deficit target of 3.4 per cent in FY20 remains doubtful, says Moody’s, the global rating agency..
The Modi government has not been able to meet the fiscal deficit target for four consecutive year as the fiscal deficit slipped by 10 bps to 3.4 per cent in 2018-2019. The interim budget included various populist policies such as tax bonanza for the middle class and sops for farmers.
While the rise in fiscal deficit was expected,the government’s ability to contain the fiscal deficit to its target level of 3.4 per cent in 2019-2020 is doubtful, noted Moody in its recent statement.
“We view this continued slippage as credit negative for the sovereign,” the agency said in its quick note on the interim budget. According to it, debt burden is the “biggest credit challenge” and is not expected to diminish rapidly. In addition, the low income levels lead to significant development spending needs and constrain the scope of tax base broadening.
However, at the same time, Moody’s welcomed the policies at promoting expenditure efficiency through rationalization of some schemes and better-targeting in delivery.It further applauded the government of its direct income transfer schemes, terming it as “credit positive” which takes time to bear fruits.
The step towards basic income for farmers of Rs 6000 per person in three installments and subsidized agricultural loans would help boost rural economy through consumption in the near term, but it will involve huge fiscal cost, believes Moody’s.