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Budget critical to India credit outlook: Moody’s
June 19, 2014, 7:06 am

 

A Hindu devotee dries his cloth after taking ritualistic holy dip at Sangam, the confluence of rivers the Ganges and the Yamuna in Allahabad, India, Tuesday, June 17, 2014 [AP]

A Hindu devotee dries his cloth after taking ritualistic holy dip at Sangam, the confluence of rivers the Ganges and the Yamuna in Allahabad, India, Tuesday, June 17, 2014 [AP]

Global ratings agency Moody’s said Thursday the Indian economy is exposed to “shocks” on account of high fiscal deficit and the country’s credit outlook will depend on the shape of the next month’s budget to contain expenditure.

“More relevant to (determine) the sovereign credit outlook will be whether the budget includes measures that address the Government’s low revenue base, high current expenditures and exposure to commodity prices,” Moody’s said in a report.

India’s budget deficit is high and this increases macro-economic imbalances and thus “expose the economy to shocks”, Moody’s Investors Service said in a new report titled, “Frequently asked questions on India’s fiscal position and the forthcoming budget”.

“In absence of measures to reduce the fiscal deficit, the future high growth rates many forecast for India may not be realised. The July Budget could indicate whether fiscal constraints on India’s sovereign credit profile will ease over the coming years,” Moody’s said.

The Federal Budget is expected to be presented in the second week of July.

The deficit in 2013-14 fiscal was 4.5 per cent.

Moody’s assigns a ‘Baa3’ rating on India, with a stable outlook.

“India’s high budget deficits are partly due to a large population and low per capita income levels. Low income levels limit the Government’s tax revenue base and at the same time drive socio-political pressure to increase Government spending on subsidies and economic development,” it added.

However, Moody’s said that other countries with low per capita income have avoided deficits as large as India’s. This suggests that fiscal discipline can improve budget outcomes despite structural challenges.

343 million of what a new Oxford study on global poverty categorizes as “destitute” (those denied an extreme lack of basic living conditions) live in India.

The Oxford Multidimensional Poverty Index, or MPI report however said India had reduced multi-dimensional poverty faster than income poverty since 2005.

 

 Source: Agencies

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