Fiscal slippage for two consecutive years credit negative: Moody's

In the interim budget for 2019-20, the government proposed to increase spending to provide income support for small farmers and introduce a middle-class tax cut in the run up to the general election between April and May.

By: PTI

Updated: 05 Feb 2019 12:50 PM

New Delhi: Moody's Investors Service Tuesday said that fiscal slippage from the budgeted targets for the past two consecutive years and tax cuts and spending ahead of the general elections, is credit negative for India.

In the interim budget for 2019-20, the government proposed to increase spending to provide income support for small farmers and introduce a middle-class tax cut in the run up to the general election between April and May.

In light of these budget measures, the government announced slippage from its original fiscal deficit targets to 3.4 per cent of GDP both for the fiscal years ending in March 2019 and March 2020.

"Ongoing fiscal slippage from spending and tax cut proposals ahead of election is credit negative for the sovereign," Moody's said.

It said the ongoing fiscal slippage from the budgeted targets over the past two years, and our expectation that the government will face challenges meeting its target again in fiscal 2019, does not bode well for medium-term fiscal consolidation.

Moody's, however, said that lack of a formal capital support plan for public sector banks is credit negative.

The budget does not include any provisions for capital support for public sector banks (PSBs). Meanwhile, the budget also does not address last year's announced merger of three public sector non-life insurers, which creates ambiguity around their merger plan, the US-based rating agency said.

On cross-sector analysis of Budget, Moody's said the Budget proposals are positive for the real estate sector but negative for state-owned oil and gas companies.