Moody’s Investors Service on Tuesday, January 4, said that the nominal GDP growth projection of 10% estimated by the Finance Minister, Nirmala Sitharaman, in her Budget for 2020-21 seems to be ‘ambitious’ given the structural and cyclical challenges that the Indian economy is facing. The Economic Survey had estimated that the economy would grow at 6% – 6.5% in 2020-21 from the earlier estimation of 5% in the financial year ending March 31.
Moody’s Investors Service said that the Indian government will face difficulties in achieving its fiscal deficit target for the current financial year.
‘Growth has remained relatively weak as a prolonged deleveraging cycle and ongoing stress among non-banking financial institutions (NBFIs), which has constrained the financial system’s overall provision of credit, weigh on consumption and investment,’ Moody’s said, commenting on the budget.
Finance Minister, Nirmala Sitharaman, in her Union Budget 2020 speech, announced to reduce the fiscal deficit to 3.5% of GDP in 2020-21, from the current 3.8%.
‘While the latest budget targets a narrower deficit, prolonged weakness in nominal GDP growth in India, combined with lower revenue collections, has dampened the outlook for fiscal consolidation, raising the risk that the debt burden may not stabilize,’ said Moody’s associate managing director, Gene Fang.
‘The debt burden is sensitive to nominal GDP growth, which we expect will remain lower on average than in the past. In light of India’s weak fiscal health compared with its rating peers, any slippage in debt reduction will be credit negative,’ Fang added.
Moody’s also said that the massive increase in bank deposit insurance coverage to â¹5 lakh per deposit holder is positive for banks, as it will build depositors’ confidence and benefit bank funding, particularly across the small and medium-sized private sector and cooperative banks.
‘The rise in public infrastructure spending and tax exemptions for sovereign wealth funds are also credit positive for infrastructure companies, as public capital outlays on highways and railways will increase modestly. Additionally, the 100% tax exemption on income and capital gains for infrastructure investment made by sovereign wealth funds will attract more long-term foreign capital,’ Moody’s added.
Also Read: Budget 2020: Economic Survey Projects India’s Growth at 6-6.5% in Next Financial Year
