Moody’s says GST is work in progress, likely to stabilise in few quarters

By: | Published: January 30, 2018 6:22 PM

Expecting goods and services tax (GST) to stabilise in the next few quarters, ratings agency Moody’s has on Tuesday said that this recently introduced indirect tax mechanism is still a work in progress that will ultimately result in formalisation of economy.

life insurance, Moody's Investors Service, Moody's, non life insurance, Non-life insurance companies, double digit growth, GDP, Annual insurance premium, Annual insurance, Insurance Regulatory and Development Authority of India, IRDAIGST likley to stabilise in the next few quarters, ratings agency Moody’s said. (Image: Reuters)

Expecting goods and services tax (GST) to stabilise in the next few quarters, ratings agency Moody’s has on Tuesday said that this recently introduced indirect tax mechanism is still a work in progress that will ultimately result in formalisation of economy. Praising government on its latest move to recapitalise public sector banks, Moody’s Investors Service Vice-President (Sovereign Risk Group) William Foster told BTVI that it was a necessary step to help banks and such reforms should continue. “ The government has provided necessary capital to the public sector banks to take the write down,” William Foster told BTVI. Talking about the upcoming budget, he said that government’s focus on spending towards capital formation will help strengthen the credit growth in economy. “ We are eyeing government’s intended use of funds. The borrowing will pay off if funds are allocated to the infrastructure spending,” he added. Targeting expenses on anticipated revenue is difficult, he said. Moody’s told BTVI that oil prices will hover in range of $40-60 bbl in medium term as high oil production in US will put down prices.

After the government announced its decision to cut additional borrowing requirement to Rs 20,000 crore, global credit rating agency Moody’s Investor Service had said that it will not affect India’s sovereign rating given. In November-17, Moody’s upgraded India’s local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive. Notably, Moody’s had revised the sovereign rating of India a notch above investment grade after a long gap of 14 years.

After the government announced additional borrowing cut, Marie Diron, Senior Vice President, Sovereign Risk Group at Moody’s Investors Service, told in an interview with CNBC TV18 that governments restructure their borrowing targets from time to time and the restructuring of the borrowing from Rs 50,000 crore to Rs 20,000 crore is a relatively small amount with respect to the size of India’s economy. “The reduction will not really impact our fiscal deficit target estimate for India and hence is not too relevant to our sovereign rating,” Marie Diron told the channel.

Interestingly, while Moody’s upgraded India’s rating, credit rating agency S&P kept its India rating unchanged at the lowest investment grade of BBB–, citing a sizeable fiscal deficit, high general government debt and low per capita income. Marie Diron added that Moody’s expects the budget deficit to be a little higher as the government calls for gradual fiscal consolidation.

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