India's Budget is Credit Supportive, Says Moody's

The national budget India's finance minister unveiled Monday places the central government’s deficit at 4.9% of GDP in the upcoming fiscal year ending in March 31, 2012 (FYE03/12), says Moody's Investors Service. This is slightly lower than the revised estimate of 5.3% for the current fiscal year, FYE03/11.

 

Over the course of the coming fiscal year, state level deficits are expected to decline to 2% of GDP, after peaking at 3.3% in FYE03/10. As a result, general government deficits are expected to be contained to 7% of GDP in FYE03/12, after reaching nearly 10% during the global recession. at 4.9% of GDP in the upcoming fiscal year ending in March 31, 2012 (FYE03/12). This is slightly lower than the revised estimate of 5.3% for the current fiscal year, FYE03/11.

 

Aninda Mitra, Vice President and author of the report, says the fiscal results are credit supportive for the Ba1 local currency sovereign rating which carries a positive outlook (the Baa3 foreign currency rating remains stable) as it will sustain a faster de-leveraging of government debt than was originally envisaged.

 

This improvement is supported by one-off increases in nominal GDP and gains from license auction fees. They are also backed by gradual improvements in budget management and structural reforms, and the economy’s ability to re-embark on a high growth trajectory following the slowdown induced by the global recession.

 

In the medium-term, fiscal and debt consolidation will also reduce the government’s interest burden and create more fiscal space.

 

"We estimate India’s government debt position will improve to 65% of GDP in FYE03/12, down from 68% of GDP by the end of this fiscal year, and 72% in FYE03/10," says Mitra. In relative terms, the Indian government’s debt burden would still remain higher than many comparable ratings peers (in the Baa3 to Ba1 range).

 

"However, in view of the predominantly local currency, fixed rate and long-tenor of the debt, which is almost entirely resident held, the ongoing reduction in the debt is a credit supportive development."

 

 

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