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Slippage in fiscal deficit target will have 'no material impact' on India's economic strength: Moody's

Global rating agency Moody's Investors Service, in its latest report on India's Union Budget 2018 has stated that slightly breaching fiscal deficit goals will have 'no material impact' on India's economic strength and is in line with its expectations. It also said that the India's Budget for 2018-19 strikes a balance between fiscal prudence and growth. The government has revised fiscal deficit projections for the current fiscal year to 3.5% of gross domestic product (GDP) as compared to 3.2% targeted earlier and it also altered 2018-19 fiscal deficit projection to 3.3% of GDP from earlier target of 3%.

In the report titled 'Cross-Sector -- India: Fiscal 2019 budget strikes balance between fiscal prudence and growth', the Moody's said that the revised fiscal consolidation path is modestly shallower than the previous roadmap, but does not fundamentally alter India's overall fiscal strength. It also said that the medium-term target to reduce the central government debt-to-GDP ratio to 40% is supportive of the sovereign credit profile. It added that the projected expenditure restraint and strong revenue growth are likely to be broadly achieved, although some measures such as the rule guiding increases in Minimum Support Prices (MSPs) and ambitious goods and services tax (GST) revenue targets could result in some further slippage.

The ratings agency also said that the budget benefits corporates as well as infrastructure and insurance sectors. It highlighted 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 and uncertainty about some spending items could result in a shortfall to overall fiscal consolidation. It further stated that the budget's measures of higher rural spending, lower corporate taxes, and relaxing restrictions on the ability of financial intermediaries to invest in lower rated corporate bonds are credit positive for most of India's corporates.

On the sectoral front, it noted that the infrastructure sector will benefit from a boost in spending and the government's continued focus on public investment will also help galvanise India's upturn in capital spending. Finally, the insurance market will benefit from the launch of a national health scheme and the merger, as well as listing, of three state-owned insurers. The insurance, and in particular non-life market, is set to benefit from the growth prospects provided by the widening of universal health insurance cover.

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