World Economy

Moody’s Says India Budget Fiscally Prudent

Moody’s Says India Budget Fiscally PrudentMoody’s Says India Budget Fiscally Prudent

India’s 2017/18 federal budget is “fiscally prudent,” as it maintains the government’s fiscal consolidation efforts and would lead to stable economic growth if implemented correctly, a Moody’s analyst said on Wednesday.

However, the ratings agency would still need to see more evidence of the effectiveness of reforms to justify a change in its ratings stance, said Marie Diron, associate managing director of the sovereign rating group at Moody’s Investors Service, Reuters reported.

On Wednesday, Finance Minister Arun Jaitley presented a budget for the fiscal year beginning April 1 that increased spending on rural areas, infrastructure and fighting poverty, but keeping fiscal deficits in check. “It is a fiscally prudent budget,” Diron said in a phone interview. 

Jaitley pledged relief for middle class taxpayers and small and medium-sized companies, saying the government would spend billions of dollars to double farmers’ incomes, upgrade ramshackle infrastructure and provide cheap housing.

“What would potentially lead to an upgrade would be evidence that these reforms that are being implemented are becoming gradually more effective in ensuring a stable and growth environment, and hence lower debt.” 

Moody’s rates India at “Baa3”, or its lowest-investment grade, with a “positive” outlook.

Meanwhile, India will remain the fastest-growing major economy in the world. That’s the Narendra Modi government’s outlook for Asia’s third-largest economy, despite the shock of demonetization and a range of uncertainties, both at home and abroad.

India’s real GDP growth will remain between 6.75% and 7.5% in the 2017-2018 financial year, the government said in its Economic Survey, an annual document that deciphers the state of the economy.

“Even under this forecast, India would remain the fastest growing major economy in the world,” the survey said. In the current financial year, real GDP is projected to grow at about 7%, the survey added, significantly lower than the 7.6% growth the economy registered in 2015-2016.

In a rather professorial presentation after the survey was tabled in parliament, India’s chief economic advisor, Arvind Subramanian, emphasized that the projections of lower growth weren’t only because of the impact of demonetization. Strengthening oil prices, for example, are also a factor, according to the survey.

The coming financial year won’t be particularly easy. The economy will continue to deal with the effects of demonetization while also contending with a range of global uncertainties. The biggest international risks to the Indian economy that Subramanian listed out include rising oil prices, trade-related tensions between major economies, and growing protectionism.


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