<p>India has witnessed no substantial enhancement in the affordability of its debt, insufficient to warrant a reconsideration of the nation’s sovereign ratings upgrade, as per an analyst at Moody’s Investors Service. This statement was made on Thursday, subsequent to the government unveiling its final budget before the impending elections.</p>
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<p>Senior Vice President Christian de Guzman, in an interview with Reuters, wisely noted, “It is worth bearing in mind that the predominant portion of the Union budget is still allocated to servicing interest payments.”</p>
<p>He further expressed, “This is the rationale behind our decision to maintain the current rating. The progress in debt affordability has not been significant enough.”</p>
<p>In August, Moody’s affirmed India’s rating at ‘Baa3’ with a stable outlook. A heightened rating implies diminished economic risk, enabling the country to borrow at more favorable rates.</p>
<p>Guzman acknowledged the continuation of the government’s positive trend in fiscal consolidation. However, he emphasized the necessity for more proactive measures in revenue generation to meet the 4.5% fiscal deficit target by 2025/26.</p>
<p>The burden of fiscal deficit consolidation may fall on government expenditure, posing a considerable challenge, he added.</p>
<p>Finance Minister Nirmala Sitharaman, in her budget presentation, announced a substantial reduction in India’s budget gap to 5.1% of gross domestic product (GDP) for 2024/25. Concurrently, she revised the current fiscal year’s gap lower by 10 basis points to 5.8%.</p>
<p>Commenting on the economic landscape, Guzman remarked, “Economic growth in India is robust, providing substantial momentum, particularly in revenue generation.”</p>
<p>Moody’s anticipates India’s real gross domestic product to register a growth of 6.2% in 2024/25.</p>
<p>However, the government might need to buttress the economy in light of concerns related to global inflationary pressures, climate-related issues, and geopolitical risks, according to Guzman.</p>
<p>Guzman observed that Thursday’s interim budget reflects a certain degree of confidence from the current government, indicating that they may not need to stimulate the economy significantly to secure victory in the upcoming election. He added that the rating agency assumes a continuation of general political stability in India.</p>
Moody’s says there hasn’t been a noticeable improvement in debt affordability in India
