India yet to see significant improvement in debt affordability: Moody’s on ratings upgrade

Moody's Investors Service says the largest proportion of the Union Budget of India is still servicing interest payments and the country has not seen significant improvement in debt affordability to justify a rethink of its sovereign ratings upgrade.

Livemint
Updated1 Feb 2024
Moody's in August had affirmed a 'Baa3' rating on India with a stable outlook
Moody’s in August had affirmed a ’Baa3’ rating on India with a stable outlook(REUTERS)

Moody's Investors Service, the credit rating agency, on Thursday, said the largest proportion of the Union budget of India is still servicing interest payments and the country has not seen significant improvement in debt affordability to justify a rethink of the country's sovereign ratings upgrade, news agency Reuters reported on Thursday.

Christian de Guzman, Senior Vice President at Moody's told the news agency, "I think it is worth bearing in mind that the largest proportion of the Union budget is still servicing interest payments." Guzman was reacting over the interim Budget which Finance Minister Nirmala Sitharaman unveiled in the Parliament today. 

"I think this is why we continue to perhaps keep the rating where it is because there hasn't been a significant improvement in debt affordability," he said.

The global risk assessment firm had affirmed a 'Baa3' rating on India with a stable outlook in August last year. A higher rating implies lower economic risk, allowing a country to borrow at cheaper rates

The government's fiscal consolidation trend remains intact which is a positive, Guzman said, adding that more "proactive" measures on revenue generation will be critical to achieve the 4.5% fiscal deficit target by 2025/26.

He further said fiscal deficit consolidation can prove to be the most challenging for the government.

Finance Minister Nirmala Sitharaman on February 1 said in her Budget 2024 speech that the government expects the fiscal deficit to be 5.1% of the gross domestic product (GDP) for the financial year 2024-2025 (FY25). To finance the fiscal deficit in FY25, the gross and net market borrowings through dated securities during 2024-25 are estimated at 14.13 and 11.75 lakh crore respectively- both less than that in FY24.

"We continue on the path of fiscal consolidation, as announced in my Budget speech for 2021-22, to reduce fiscal deficit below 4.5% by 2025-26. The fiscal deficit in 2024-25 is estimated to be 5.1% of GDP, adhering to that path," the finance minister said.

The finance minister also revised the fiscal deficit target for FY24 to 5.8 per cent of GDP. "The revised estimate of the fiscal deficit is 5.8 per cent of GDP, improving on the Budget estimate, notwithstanding moderation in the nominal growth estimates," the finance minister added.

Moody's said the economic growth of the country is "very healthy," and that should help the government sustain a lot of momentum in areas such as revenue generation.

Moody's expects India's real gross domestic product to grow 6.2% in 2024/25.

However, Guzman said New Delhi may have to support the economy amid concerns over global inflationary pressures, and climate-related and geopolitical risks.

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