© Reuters. FILE PHOTO: Labourers work at the site of an under construction flyover in Kolkata, India, February 1, 2022. REUTERS/Rupak De Chowdhuri
By Abhirup Roy
MUMBAI (Reuters) – Ongoing disruption from the COVID-19 pandemic poses a risk to India’s fiscal deficit target for 2022/23, a Moody’s (NYSE:MCO) analyst said on Tuesday, after the government presented its federal budget to support economic growth.
India’s Finance Minister Nirmala Sitharaman set a fiscal deficit target of 6.4% of GDP for the year ending March 2023. For the current year, she estimated a fiscal deficit of 6.9%, slightly above the 6.8% it had budgeted.
The wider-than-expected fiscal deficit demonstrates the risk from the pandemic, said Christian de Guzman, senior vice president, sovereign risk group, Moody’s Investors Service, adding that the government had to spend more and miss some receipts from privatisation.
India’s economy has rebounded from the depths of the pandemic but mobility restrictions to curb the spread of the virus have led to tens of thousands of job losses, hamstrung private investments and caused supply chain disruptions which have pushed up food and raw material costs.
“The message here is that the pandemic risks still do exert an overall risk of a wider-than-expected fiscal deficit for the next year,” Guzman told Reuters.
Sitharaman unveiled a bigger budget of 39.45 trillion rupee ($529.7 billion) for the coming fiscal year, stepping up investment on highways and railways and announcing higher subsidies for affordable housing, amid public criticism over inadequate relief following the outbreak of the pandemic in 2020.
The government, however, retained its aim to bring down the fiscal deficit to 4.5% of GDP by 2025/26.
“There is still an overwhelming emphasis on capital expenditure to further growth momentum. There has been somewhat limited initiatives with regards to raising revenue,” Guzman said, adding that there was “some uncertainty” with the medium-term deficit target.
A government report on Monday warned that growing risks of global inflation led by rising crude oil prices could hit the economy, while projecting growth of 8% to 8.5% next fiscal year compared with 9.2% in the current fiscal year and 6.6% contraction in the previous year.
Guzman said the budget announcements did not change the rating agency’s stance on India. Moody’s rates India at “Baa3” with a “stable” outlook.
Source: Investing.com
