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Rating agency Moody's says 3.3% fiscal defict achievable


Mumbai, Feb 1: In his Budget speech, Finance Minister Arun Jaitley revised fiscal deficit estimates for the current financial year upwards at Rs 5.95 trillion or 3.5 per cent of GDP against the estimate of 3.3 per cent and also projected 3.3 per cent for FY19, up from the road-map of 3 per cent of GDP. Global rating agency Moody's said the fiscal deficit projection of 3.3 per cent for FY19 is in line with its forecast and the target will be achieved.

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"The direction of fiscal deficit announced in the Budget is in line with our forecast. We expect that fiscal deficit targets will be broadly achieved," Moody's said in a note today.

A slower broadening of the tax base after the note-ban and GST implementation as well as weather- related impacts on crops could contribute to revenue slippage, it warned.

"Conversely, rapid rise in the number of taxpayers, albeit from a low base, could contribute to revenue growth more significantly than we currently expect," Moody's said.

Moody's which has the best ratings on the country, expects revenue generation targets will be broadly achieved as the medium- to long-term benefits of GST and note ban reforms, including increasing the size of the formal economy, are realized over the next several years. Jaitley said he had been successvley and successfully bringing down fiscal deficit. It was brought down to 4.1 per cent in FY15, further down to 3.9 per cent in FY16, and to a still lower 3.5 per cent in FY17.

The agency expects the somewhat larger deficit than initially budgeted for fiscal 2018, at 3.5 per cent. This outcome, however, does not alter the longer-term trend towards fiscal consolidation, it said. It forecasts the debt-to-GDP ratio to be about 69 per cent in fiscal 2019, which incorporates our assessment of the deficit trends based on the announced budget. The high debt burden remains a credit constraint for the sovereign, and is not expected diminish rapidly because of the country's low income levels leading to significant development spending needs and constraining the scope of tax base broadening.

It said the continued focus to promote expenditure efficiency through rationalization of government schemes and better-targeted delivery and re-asserted endorsements of the FRBM committee recommendations are credit positive. For fiscal 2019, Jaitley has set a disinvestment target of Rs 80,000 crore.

"This year's divestments exceeding targets marks a break in a recent trend of missing ambitious targets," Moody's said.

Moving forward, increased divestments could contribute to higher government revenues, greater efficiencies within state-owned enterprises and help reduce the government's high debt burden, it said. The divestment target points to likely further consolidation of state owned oil & gas companies, it added.


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