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Moody’s Projects Nominal 17% Growth For Next Fiscal


NEW DELHI: Global rating agency Moody’s projected India’s nominal growth at 17% for the coming fiscal, a mark up from the 14.3% earlier, based on the “pro-growth” budget, but highlighted the weak prospects of fiscal consolidation.

“The budget’s focus on higher capital expenditure, financial sector reforms and asset sales will help to stimulate growth and supply broad-based credit support,” it said in a report on Wednesday.

The larger-than-expected deficit projections reflected both credible budgetary assumptions and greater transparency, but the government’s weak fiscal position is likely to remain a key credit challenge, Moody’s said.

The Union Budget, presented by finance minister Nirmala Sitharaman on Monday, forecast nominal gross domestic product (GDP) growth at 14.4%.

The agency had pegged India’s fiscal deficit for the current fiscal at 7.5% of GDP and 5.5% for the next fiscal, while the budget put the figures at 9.5% and 6.8% for FY21 and FY22, respectively.

“However, compared with previous budgets, the gap between our forecasts and the government’s, largely reflects increased transparency on subsidy spending and more credible overall assumptions,” the report said, adding that it expects the final figure to be lower based on stronger revenue generation during the fourth quarter of FY21.

In terms of the consolidation roadmap, without providing the explicit path, the targeted deficit of 4.5% by FY26 implied an average annual deficit reduction of about 0.5% of GDP over four years.

Combined with the expected rise in debt burden to over 90% in the ongoing fiscal, the “gradual pace of consolidation will prevent any material strengthening in the government’s fiscal position over the medium term,” Moody’s said.

The agency counted the opening up of the insurance sector to 74% foreign direct investment from 49% as a credit positive and said achieving the disinvestment target of Rs 1.75 lakh crore would be key to achieving other budget targets.

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