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India's fiscal position to remain weak: Moody's
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SME Times News Bureau | 25 Feb, 2021
Moody's Investors Service says that India's (Baa3 negative) weak fiscal position will remain a key credit challenge in 2021.
According
to Moody's, the prospects for fiscal consolidation remain weak
particularly given the government's mixed track record of implementing
revenue-raising measures.
Although the government has not
provided an explicit medium-term fiscal consolidation road map,
according to its Budget speech it targets a fiscal deficit of 4.5 per
cent of GDP by fiscal 2026, which amounts to an average annual deficit
reduction of about 0.5 per cent of GDP over four years.
Given
India's very high debt burden, this gradual pace of consolidation will
prevent any material strengthening in the government's fiscal position
over the medium term, unless nominal GDP growth picks up sustainably to
reach much higher rates than historically recorded, Moody's said.
According
to Moody's, the central government's fiscal deficit for fiscal 2021 and
fiscal 2022 should be lower than projected, supported by stronger
revenue generation in the fourth quarter of fiscal 2021 and higher
nominal GDP growth in fiscal 2022.
"Still, wide fiscal deficits
combined with lower real and nominal GDP growth over the medium term
will constrain the government's ability to reduce its debt burden," says
Gene Fang, a Moody's Associate Managing Director.
Moody's Indian
affiliate, ICRA Limited, meanwhile, says it expects a considerable
rebound in India's economic growth in the fiscal year ending March 31,
2022 (fiscal 2022) on the back of higher central government spending,
and a pickup, albeit uneven, in consumption.
Overall, ICRA
projects that real and nominal GDP will rise 10.5 per cent and 14.5 per
cent, respectively, for fiscal 2022 as the pandemic recedes.
According
to ICRA, recent economic data signal a broadening of the economic
rebound in the third quarter of fiscal 2021, with most tracked
indicators recording improvements from the year-ago period. Data for the
current quarter also suggest a stable economic momentum.
Meanwhile,
near-term prospects for the agricultural sector are bright, in ICRA's
assessment, with many regions recording healthy precipitation and
reservoir levels, increasing acreage of Rabi crops and healthy
procurement trends.
ICRA expects that the consumption recovery
will be differentiated across age and income groups in fiscal 2022.
Pent-up demand for discretionary activities like travel could lead
higher income groups to spend more on recreation after Q2 FY2022 once
vaccines are more widely distributed. This would provide a back-ended
boost to economic activity in the second half of fiscal 2022 and fiscal
2023.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
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66.20
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64.50 |
UK Pound
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87.50
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84.65 |
Euro
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78.25
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75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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