MUMBAI: India will face challenges meeting its fiscal deficit target of 3.4 percent for 2019/20, a Moody’s analyst said on Friday, after the government announced plans to step up rural income support in its last budget before a general election due by May.
India set a fiscal deficit target of 3.4 percent of gross domestic product (GDP) for the year ending March 2020, higher than a previous estimate, and also said it would breach the current year’s 3.3 percent deficit target.
“Taken together, it doesn’t really bode well for their medium-term fiscal consolidation targets,” said Gene Fang, associate managing director, sovereign risk group, Moody’s Investors Service. “From that perspective we would say, on balance, it’s credit negative.”
However, he said the budget announcements did not change the rating agency’s stance on India. Moody’s rates India at “Baa2” with a “stable” outlook.
The government’s new targets fall short of its earlier commitment to reduce the fiscal deficit to 3.1 percent by the end of March 2020, and to 3 percent by March 2021.
Prime Minister Narendra Modi’s government poured extra money into support for farmers and a rural jobs programme, as he seeks re-election.
“The chances are that these measures are going to have some fiscal cost and that unless there are cuts elsewhere or offsetting revenue increases… I think that in the medium term it may be more challenging to meet their fiscal deficit targets for next year,” Fang said.