Modi government may breach fiscal deficit target in FY19; here’s why Moody’s say so

By: | Published: August 29, 2018 3:00 PM

Modi government may breach 3.3 percent target of fiscal deficit for FY19 in wake of rising crude oil prices globally, said Moody's.

PNB, SBI, moody's counterparty risk ratings, Moody's Investors Service, CRR, PNB scam, Moody's CRR list 2018Moody’s said that current account deficit (CAD) may also widen. (Reuters)

Modi government may breach 3.3 percent target of fiscal deficit for FY19 in wake of rising crude oil prices globally, said a global rating agency. The surge in oil prices may add short-term pressures on the fiscal maths of the government, said Credit rating agency Moody’s Investors Service on Wednesday. “Higher oil prices add to short-term fiscal pressures, following cuts in the goods and services tax on some items and relatively high increases in minimum support prices for some crops. We see risks that the deficit will be wider than budgeted,” Moody’s said.

The rating agency said that current account deficit (CAD) may also widen. However, India’s external position will not be affected due to the same, Moody’s also said, adding the gap may continue to remain narrower than five years back.

“Oil prices at current levels will raise expenditures and add to existing pressures on the fiscal position stemming from the lowering of goods and services tax (GST) rates on a range of consumer goods and a tax cut for small businesses as well as the relatively high minimum support prices set for this year,” it said.

Even though higher oil prices and interest rates may put pressure on the government’s budget and current account, growth prospects remain in line with the economy’s potential that is near to 7.5 percent this year and next, said Joy Rankothge, Moody’s Vice President and Senior Analyst.

The fiscal deficit has been budgeted at 3.3 percent of GDP in the running fiscal by the government. The fiscal deficit touched 68.7 percent of Budget estimates during April-June quarter of current fiscal.

Last year, the rating agency had raised India’s sovereign rating for the first time to ‘Baa2′ with a stable outlook in more than thirteen years. Due to continued economic and institutional reforms the growth prospects of the country have improved, it had then said.

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