Budget 'realistic', positive for ratings, says Moody's

Govt's fiscal consolidation plans could pave way for monetary easing, thus helping revive economic growth

 

Moody Investors service has called India Budget 2013-14 "positive for sovereign ratings.” The global ratings agency has said that the budget offers a realistic plan to meet the fiscal deficit target of the country.

Finance Minister P Chidambaram’s in the budget last week said that the fiscal deficit would stand at 5.2% of the gross domestic product (GDP) by March 2013 and 4.8% by the end of March 2014.

Moody’s said in its report that the fiscal consolidation plans could revive economic growth by paving way for monetary easing. However, the agency noted that the extent of any such monetary easing would depend upon the Reserve Bank of India.

“This plan of modest fiscal consolidation is credit positive for the sovereign because against a backdrop of subdued GDP growth and upcoming elections, it is a realistic effort to correct India's macroeconomic imbalances,” Moody’s report said.

However, two rating agency including, Standard & Poor’s and Fitch have given a negative outlook for India.

Moody's had assigned BAA3 rating to India, which indicates investment grade rating with stable outlook.

The report further said that fiscal consolidation proposed by Chidambaram could could pave the way for monetary easing, which would revive growth.

The extent of easing, however, would depend upon the assessment of the RBI on the commitment of the government to contain fiscal deficit in the Budget.

The RBI had been insisting on a sustained commitment to fiscal consolidation to help it ease monetary policy.