Moody's lauds Modi govt's 2018 Union Budget, says it strikes balance between fiscal prudence and growth

Credit agency Moody's has praised the Modi govt's Budget for 2018-19 stating that it strikes a balance between fiscal prudence and growth
The rating agency added that a  "slight" slippage in fiscal deficit has no material impact on overall economic strength.

The government has revised its 2018-19 fiscal deficit projections to 3.3 per cent of GDP and for the current fiscal to 3.5 per cent of GDP, against original targets of 3 per cent and 3.2 per cent, respectively.

"The revised fiscal consolidation path is modestly shallower than the previous roadmap, but does not fundamentally alter India's overall fiscal strength," says William Foster, Vice President-Senior Credit Officer at Moody's.

The medium-term target to reduce the central government debt-to-GDP ratio to 40 per cent is supportive of the sovereign credit profile, Foster said.

Moody's in a statement said India's budget for the fiscal year ending March 2019 strikes a balance between fiscal prudence and growth.

"Slight slippage in the budget deficit targets has no material impact on the country's overall fiscal strength and is in line with Moody's expectations," it said.        

The budget benefits corporates as well as infrastructure and insurance sectors, said Joy Rankothge, Vice President -- Senior Analyst.

Moody's expects that the government will meet next year's deficit target, based on achievable budget assumptions and demonstrated commitment to fiscal prudence.       

"However, some ambitious revenue assumptions anduncertainty about some spending items could result in ashortfall to overall fiscal consolidation," Moody's said.       

"The projected expenditure restraint and strong revenuegrowth are likely to be broadly achieved, although somemeasures such as the rule guiding increases in Minimum SupportPrices (MSPs) and ambitious GST revenue targets could resultin some further slippage," Foster said.   

The formal adoption -- as stated by Finance Minister ArunJaitley when he announced the budget -- of key recommendationsby the Fiscal Responsibility and Budget Management Committee(FRBM) as "credit positive".       

These include the objective to bring down the centralgovernment debt-to-GDP ratio to 40 per cent (from about 50 percent today) and use of the fiscal deficit target as thegovernment's key operational parameter, Moody's said.       

For most of India's corporates, the budget's measures ofhigher rural spending, lower corporate taxes, and relaxingrestrictions on the ability of financial intermediaries toinvest in lower rated corporate bonds are credit positive, it added.       

The infrastructure sector will benefit from a boost inspending and the government's continued focus on publicinvestment will also help galvanise India's upturn in capitalspending, Moody's said.       

Finally, the insurance market will benefit from thelaunch of a national health scheme and the merger, as well aslisting, of three state-owned insurers.       

"The insurance, and in particular non-life market, is setto benefit from the growth prospects provided by the wideningof universal health insurance cover," it added.