Interim budget firmly conveys govt's commitment to fiscal consolidation goals: Moody's

Moody's Investors Service said on Thursday that India's interim budget has indicated a continued narrowing of the fiscal deficit after the COVID-19 pandemic. However, it is important to note that before the pandemic, India's fiscal deficit was below 5%.

Moody's last August had affirmed a 'Baa3' rating on India with a stable outlook. A higher rating implies lower economic risk, allowing a country to borrow at cheaper rates.

Moody's also noted that while most countries have not defaulted, a lack of default history is not a marker of a high credit rating. The agency also said that it believes it has given credit to India for progress in fiscal deficit consolidation.

Finance Minister Nirmala Sitharaman, in her interim budget today, estimated the fiscal deficit in the next financial year at 5.1% of GDP, lower than 5.8% in the current fiscal.

"We continue on the path of fiscal consolidation, as announced in my Budget speech for 2021–22, to reduce the fiscal deficit below 4.5% by 2025–26," Sitharaman said.

Chief Economic Advisor V Anantha Nageswaran's office in December 2023 published a report, titled “Re-examining Narratives - a Collection of Essays”, which raised questions about narratives about the Indian economy. The report questioned the methodology of rating agencies Fitch, S&P, and Moody’s while rating a sovereign.

On rating agencies, Finance Secretary TV Somanathan told a CNBC-TV18 panel to discuss today's interim budget that, "I have nothing to say. I have no hopes from the rating agencies. I don't believe they are fair. And I don't believe these things matter much to them. They will do what they do and we will live with what we live with."

He also added, "I think there's enough evidence to see that. There are double standards, but we live with those double standards. We are very realistic. So I will not comment on any ratings outcomes. We are not targeting any ratings outcomes through these actions. We are doing them because we think they are the right thing to be done for the economy and they're good for the economy. What the raters think about it is left for them to decide."