Mumbai: The government is likely to meet its fiscal deficit target of 3.3% of gross domestic product (GDP) for fiscal year 2018-19, according to rating agency Moody’s Investor Services. For FY18, the government had initially set the fiscal deficit target at 3.2% of GDP, but had later revised it to 3.5% of GDP.
This comes after Moody’s upgraded India’s sovereign rating last year to a notch above the lowest investment grade and changed the outlook from stable to positive.
“Although Moody’s sees some downside risk to budgeted revenue and expenditure targets, it expects that the government would cut back on planned capital expenditure, as has occurred in past years, if it is needed to offset any slippage from its fiscal targets," says William Foster, vice president and senior credit officer, Moody’s Investor Service.
On the revenue side, Moody’s expects some downside risks to the government’ s assumption on collections from the goods and services tax (GST) and excise duty on petroleum products. The uncertainty around GST implementation and compliance could also result in potential losses, the rating agency said.
Moody’s also highlighted that the government could reduce excise duty in view of the high oil prices and this could exert pressure on India’s sovereign credit profile. The rating agency’s Indian affiliate Icra Ltd, too, expects high crude oil price to widen India’s current account deficit.
“If global oil prices remain at current levels, Icra expects India’s current account deficit to widen to 2.4% of GDP in FY2019 from 0.7% of GDP in FY2017," says Aditi Nayar, principal economist with Icra.
“However, higher crude oil prices and a weaker rupee would improve remittances and the services trade surplus in FY2019, offsetting some of the adverse effects of rising commodity prices," Nayar added.