India’s fiscal consolidation trend intact; to see strong revenues, debt stabilisation: Moody’s

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Moody’s Investors Service on November 22 said the trend of gradual fiscal consolidation remains intact for India and going forward the country will see strong revenue performance and debt stablisation.

Moody’s Investors Service senior vice-president Christian de Guzman said India’s ‘Baa3’ sovereign rating balances its strength of relatively high economic growth and weakness of one of the most highly indebted emerging market sovereigns. The country’s healthy financial system is reflected in deleveraging by Indian corporates.

“We expect that India is going to be the fastest growing G20 economy next year… (but) high inflation pose a downside risk to India’s growth as households and businesses have less purchasing power,” Mr. Guzman said in a Moody’s virtual event ‘Sovereign Deep Dive’.

Moody’s had earlier this month cut India’s growth projection for 2022 to 7%, from 7.7% projected earlier. It expects growth to decelerate to 4.8% in 2023 and then to rise to around 6.4% in 2024. The Indian economy grew 8.5% in 2021.

It projected GDP growth of the G-20 economies to decelerate to 1.3% in 2023, significantly lower than its previous estimate of 2.1%.

Mr. Guzman said further improvement with regard to fiscal situation and a faster than expected pace of fiscal consolidation leading to substantial debt reduction would translate into a positive rating pressure on India.

Moody’s had in October 2021 raised India’s sovereign rating outlook to ‘stable’, from ‘negative’, while affirming the ‘Baa3’ rating, which is the lowest investment grade, just a notch above junk status.

“We have seen over the past couple of years that there is some revenue bouyancy … Revenue performance has been relatively strong. We think the trend of gradual fiscal consolidation does remain intact… There is going to be a stabilisation of debt… We don’t see debt creeping back significantly again,” Mr. Guzman said.

India’s debt ratio is projected to be 84% of its GDP by the end of 2022, which is higher than many emerging economies.

India’s fiscal deficit, the gap between expenditure and revenue, is projected to come down to 6.4% in the current fiscal ending March 2023, from 6.71% in 2021-22 fiscal year. The government has set a consolidation target under which it aims to reach a fiscal deficit level below 4.5% by 2025-26.

Asked if a weaker Rupee would put a strain on India, Mr. Guzman said majority of India’s debt is in local currency, and foreign currency debt is on near-concessional basis from multilateral or bilateral development partners and hence it is on relatively generous terms.

“We don’t think rupee depreciation is going to bring material deterioration in the government’s ability to service foreign currency debts,” Mr. Guzman said.