The Central government's fiscal deficit may reach 3.4 pc of GDP in the financial year ending March 2019, says Moody's.
The Central government's fiscal deficit may reach 3.4 pc of GDP in the financial year ending March 2019, says Moody's.

Sops to farmers, SMEs may inflate fiscal deficit: Moody's

ANI | Updated: Jan 25, 2019 18:02 IST

New Delhi [India], Jan 25 (ANI): Recent policy measures announced by the Indian government raise the risk of fiscal slippage in absence of new revenue-boosting measures, global financial services major Moody's warned on Friday.
Over the past month, the Central government has announced a range of policies to support the income of small enterprises and low-income households. It is also considering additional steps to support farmers facing financial distress.
"In the absence of new revenue-boosting measures, the policies will collectively make it harder for the Central government to achieve its fiscal consolidation objectives," said Moody's Investor Service.
"Meanwhile, meeting the short-term fiscal objectives through one-off sources of revenue and cuts in capital expenditure would denote low fiscal policy effectiveness."
The measures come ahead of India’s Parliamentary General Elections, likely to be held in April and May 2019. The authorities have presented them as permanent measures which would have a long-lasting impact on India's public finances, said Moody's.
"We currently expect the Central government's fiscal deficit to reach 3.4 per cent of GDP in the financial year ending March 2019 (fiscal 2018), marginally higher than the budgeted target of 3.3 per cent of GDP."
If implemented, the proposed measures will cause further slippage from India's fiscal consolidation road-map, which targets reducing the Central government's deficit to 3.1 per cent and 3 per cent of GDP in fiscal 2019 and fiscal 2020 respectively.
Despite lower-than-planned expenditure, weakening revenue has resulted in the government already exceeding its full-year deficit target for fiscal 2018, reaching 114 per cent of the budgeted amount from April to November 2018.
The collection of revenue has started to trend downwards while fiscal deficits have risen. GST relief and tax cuts will erode the revenue base near term. Changes to the Goods and Services Tax (GST) framework will weigh on tax revenue collection near term, said Moody's.
Meanwhile, income from divestment of government assets has been weaker than budgeted in fiscal 2018. From April to December 2018, proceeds from divestments only amounted to 42.7 per cent of Rs 80,000 crore that the Central government planned to raise, highlighting the challenges in relying on divestment as a sustained source of revenue. (ANI)