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Budget 2021-22 provides for pro-growth measures: Moody's
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SME Times News Bureau | 03 Feb, 2021
India's Budget 2021-22 provides for pro-growth measures that will
support credit quality across sectors in the near term, but at the
expense of fiscal consolidation, a report by Moody's Investors Service
said.
The budget calls for a narrowing of the Centre's fiscal
deficit to 6.8 per cent of GDP in FY22 from an estimated 9.5 per cent in
FY21.
"While the headline deficit projections are larger than we
expected, they reflect both credible budgetary assumptions and greater
transparency than in past budgets," said William Foster, a Moody's Vice
President and Senior Credit Officer.
"The budget's focus on
higher capital spending, financial sector reform and asset sales will
help stimulate growth, but implementation risks remain and slower fiscal
consolidation will constrain fiscal strength over the medium term."
As per the report, the financial sector will undergo some credit positive reform under the new budget.
"Banks
will benefit from the establishment of an asset reconstruction company
to resolve legacy problem loans, and public sector banks additionally
from an INR200 billion capital infusion."
"Meanwhile, the
increase in the limit on foreign direct investment in insurers to 74 per
cent from 49 per cent will unlock new sources of funding and access to
external know-how."
"Privatisation of one insurer and two banks
will be credit negative for those companies as it will reduce ongoing
government support but will make them more market oriented."
According
to the report, tax incentives and other measures to increase
consumption are credit positive for non-financial companies, with
stronger demand in the housing and automobile sectors to carry over to
other sectors such as steel.
"High public spending on highways
and railways is also credit positive for infrastructure companies, with
capital outlay for highways up 26 per cent from the previous year."
"Finally,
Indian securitisation transactions will benefit from regulatory changes
that will allow for quicker debt recovery, and from interest deductions
on affordable home loans that will increase borrower debt servicing
ability."
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