Bangkok--10 Jul--Moody's Investors
Moody's Investors Service says that the Indian government's recent budget announcement is in line with its stable outlook on its Baa3 foreign-currency and Ba2 (non-investment grade) local-currency sovereign credit ratings, while various medium-term risks remain unaddressed.
"The overall deficit out-turn is larger than those of India's Baa- and Ba-rated peers, but it is -- at the same time -- based on conservative macro-economic assumptions, and still broadly consistent with the near-term stability in the government's debt trajectory," says Mr Aninda Mitra, a Moody's Vice President and Senior Analyst. "This debt is expected to stand at 82% of GDP and includes monetary stabilization securities issued by the country's central bank.
"Moreover, the financing of the deficit should be reasonably comfortable, if the government utilizes its new-found 'political space' and follows through with a concerted disinvestment effort," says Mitra.
Mitra was speaking on the release of a report -- which he authored -- analyzing the implications of the Indian government's latest budget for its debt outlook and its sovereign ratings.
"However, if the Indian government's debt finance-ability and its debt sustainability were to worsen -- due to a lack of medium-term reforms or delays in privatization, or due to large unexpected shocks -- then negative rating actions may follow," says Mitra.
But for now, at a time of anemic global economic activity, India's growth momentum remains strong and will continue to benefit from expansionary fiscal and accommodative monetary policies.
As such, Moody's expects GDP growth to reach 6% in the current fiscal year, FYE3/10, and 7% in FYE3/11. Moreover, the government has the political scope to formulate a robust response to emerging challenges and this consideration is also incorporated into the stable outlook Moody's currently maintains on the sovereign ratings.
The report is entitled, India's Pro-Growth Budget Postpones Medium-Term Reforms. It can be found at www.moodys.com