India’s nominal growth projection and fiscal deficit target for 2020-21 will be challenging to achieve, a Moody’s analyst said on Saturday, after the government presented the union budget to boost economic growth.
India’s finance minister, Nirmala Sitharaman, set a fiscal deficit target of 3.5% of GDP for the year ending March 2021 and said it expected nominal GDP of 10%. The government had targeted nominal growth of 12% for the current fiscal year.
“The overall trajectory is not one that’s consistent with the fiscal consolidation that we expected earlier,” said Gene Fang, associate managing director, sovereign risk group, Moody’s Investors Service.
“In addition to that, the 10% nominal growth expectation that’s in the 2021 budget is going to be challenging to achieve and as a result that would present some fiscal challenges as well,” he said.
Prime Minister Narendra Modi’s government said on Saturday it would inject nearly $40 billion into the farm sector and billions more into a federal water scheme to lift economic growth back up from its lowest in a decade.
India’s economic growth fell to 4.5% in the July-September quarter - hit by a sharp decline in demand that has stung businesses and forced companies to cut investment and jobs.
On Friday, the government forecast real economic growth will pick up to 6.0% to 6.5% in the fiscal year beginning April 1, but warned that it could mean a high fiscal deficit.
“We are seeing slower trends in terms of real GDP growth. We are projecting real growth to be probably slightly higher than what we’ve seen in the 2020 year but not significantly so,” Fang said.
However, he said the budget announcements did not change the rating agency’s stance on India. Moody’s rates India at “Baa2” with a “negative” outlook.
