Budget lacks major steps to enhance revenue to off-set spending: Moody's

Deficit target of 6.4% poses uncertainty due to pandemic risks

Global rating agency Moody’s on Tuesday said various spending initiatives in the Union government's Budget for 2022-23 (FY23) are not offset by any significant announcements related to further increasing revenue generation.

Rather, revenue-related measures in the Budget were aimed at other objectives, including fostering innovation in the startup sector; ensuring more equitable treatment for cooperatives and state government employees etc, said Christian de Guzman, senior vice president, Sovereign Risk Group, Moody’s.

In its initial comments on the Union Budget, the rating agency said the government aims to narrow the deficit to 6.4 per cent in FY23 from a projected 6.9% in FY22. For this, the government is relying on strong economic growth to help drive fiscal consolidation in light of the large bump in capital expenditure. This poses some uncertainty given the prevalence of pandemic-related risks.

The wider-than-expected deficit in FY22 in part reflects higher spending on the back of the second COVID wave, as well as a larger subsidy bill that was driven by higher prices for food and commodities, it added.

On a general government basis, state government finances also continue to pose challenges to fiscal consolidation. This is due higher spending implied by the larger allocation for financial assistance for capital expenditure at the state level and the allowed deficit of 4% of GSDP.

On the back of the government’s announcements on climate change over the past year, the focus on climate-related initiatives in the budget signals the government’s broadening commitment to achieve net-zero carbon emissions by 2070.

Intentions to use sovereign green bonds and to significantly increase subsidies to promote solar power generation are a good start. But, further details on the more comprehensive approach towards decarbonisation would be needed to discern the credibility of India’s ambitious targets, and more importantly, its economic and fiscal implications, it added.