© Reuters. India’s Finance Minister Nirmala Sitharaman holds up a folder with the Government of India’s logo as she leaves her office to present the federal budget in the parliament, ahead of the nation’s general election, in New Delhi, India, February 1, 2024. REUT
By Siddhi Nayak and Swati Bhat
MUMBAI (Reuters) – India has not seen significant improvement in debt affordability to justify a rethink of the country’s sovereign ratings upgrade, an analyst at Moody’s (NYSE:) Investors Service said on Thursday, after the government unveiled its last budget before upcoming elections.
“I think it is worth bearing in mind that the largest proportion of the Union budget is still servicing interest payments,” Senior Vice President Christian de Guzman told Reuters in an interview.
“I think this is why we continue to perhaps keep the rating where it is because there hasn’t been as significant improvement in debt affordability.”
Moody’s in August had affirmed a ‘Baa3’ rating on India with a stable outlook. A higher rating implies lower economic risk, allowing a country to borrow at cheaper rates.
However, Guzman said the government’s fiscal consolidation trend remains intact which is a positive, but more “proactive” measures on revenue generation will be critical to achieve the 4.5% fiscal deficit target by 2025/26.
Government expenditure may have to do the heavy-lifting on fiscal deficit consolidation which can prove to be challenging, he added.
India will reduce its budget gap sharply in 2024/25 to 5.1% of gross domestic product (GDP), Finance Minister Nirmala Sitharaman announced in her budget presentation, while revising the current fiscal year’s gap lower by 10 basis points to 5.8%.
Economic growth in India is “very healthy,” and that should help the government sustain a lot of momentum in areas such as revenue generation, Guzman said.
Moody’s expects India’s real gross domestic product to grow 6.2% in 2024/25.
The government, however, may have to support the economy amid concerns over global inflationary pressures, climate-related and geopolitical risks, he said.
Thursday’s interim budget implies a certain degree of confidence by the current government “that they don’t need to actually pump prime the economy to win this election,” Guzman said, adding that the rating agency assumes general political stability will continue in India.
This story originally appeared on Investing
