Get 40% Off
🚨 Volatile Markets? Find Hidden Gems for Serious OutperformanceFind Stocks Now

India yet to see significant improvement in debt affordability - Moody's

Published 02/01/2024, 05:05 AM
Updated 02/01/2024, 07:07 AM
© Reuters. India's Finance Minister Nirmala Sitharaman holds up a folder with the Government of India's logo as she leaves her office to present the federal budget in the parliament, ahead of the nation's general election, in New Delhi, India, February 1, 2024. REUT

By Siddhi Nayak and Swati Bhat

MUMBAI (Reuters) -India has not seen significant improvement in debt affordability to justify a rethink of the country's sovereign ratings upgrade, an analyst at Moody's (NYSE:MCO) Investors Service said on Thursday after the government unveiled its last budget before the upcoming elections.

"I think it is worth bearing in mind that the largest proportion of the Union budget is still servicing interest payments," Senior Vice President Christian de Guzman told Reuters in an interview.

"I think this is why we continue to perhaps keep the rating where it is because there hasn't been as significant improvement in debt affordability."

Moody's in 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.

However, Guzman said the government's fiscal consolidation trend remains intact which is a positive, but more "proactive" measures on revenue generation will be critical to achieve the 4.5% fiscal deficit target by 2025/26.

"Given the challenging global environment and the potential for climate-related shocks, emerging spending needs not currently included in the budget could restrict the government's ability to meet its deficit target," Guzman said in a statement.

"We expect the final budget, to be released after the elections, to provide more definitive indications of India's fiscal consolidation trajectory over the medium term."

Government expenditure may have to do the heavy-lifting on fiscal deficit consolidation which can prove to be challenging, Guzman added.

India will reduce its budget gap sharply in 2024/25 to 5.1% of gross domestic product (GDP), Finance Minister Nirmala Sitharaman announced in her budget presentation, while revising the current fiscal year's gap lower by 10 basis points to 5.8%.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

Economic growth in India is "very healthy," and that should help the government sustain a lot of momentum in areas such as revenue generation, Guzman said.

Moody's expects India's real gross domestic product to grow 6.2% in 2024/25.

The government, however, may have to support the economy amid concerns over global inflationary pressures and climate-related and geopolitical risks, he said.

Thursday's interim budget implies a certain degree of confidence by the current government "that they don't need to actually pump prime the economy to win this election," Guzman said, adding that the rating agency assumes general political stability will continue in India.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.