FM cites India’s unblemished fiscal consolidation track record to Moody’s not changing ratings

New Delhi: Finance Minister Nirmala Sitharaman on Sunday flaunted India’s unblemished track record of not faltering on any of its fiscal consolidation or debt reduction targets as she seemed to shrug off the passiveness of agencies like Moody’s which have not upgraded India’s ratings.

Sitharaman in her budget for fiscal year beginning April treaded a fine line between fiscal prudence and providing a thrust to growth as she not only gave the middle class the biggest-ever tax relief but also unveiled a glide path for reducing fiscal deficit next year and debt as percentage of GDP by 2031.

India, she said, had to borrow more during the pandemic to meet the fiscal needs of the economy amid global challenges, supply chain disruptions and geopolitical conflicts in two theatres. “Despite all these we have shown a commitment and following the commitment to the last word as regards fiscal deficit and the glide path that we should follow,” she said. “We have, not one year have we failed (to meet our commitment)”.

Moody’s Ratings on Saturday ruled out an immediate upgrade of India’s sovereign rating despite the government’s efforts to manage its finances prudently.

“While we view the government’s sustained fiscal discipline and narrower fiscal deficits as credit positive, we don’t expect these improvements in the debt burden or ‘debt affordability’ to be enough to trigger a sovereign rating upgrade at this time,” Christian de Guzman, Senior Vice President, Moody’s Ratings, said on Saturday.

Moody’s currently maintains India’s sovereign rating at “Baa3” with a stable outlook, which is the lowest investment-grade rating.

While India is making strides toward fiscal discipline and inflation control, Moody’s maintains that for a rating upgrade, a substantial reduction in the debt burden and more significant revenue-generating measures are essential. Despite recent improvements, the fiscal deficit and debt-to-GDP ratio remain wider than pre-pandemic levels, with debt servicing costs continuing to take up the largest portion of the budget, even surpassing infrastructure spending, it believed.

A ratings upgrade indicates a reduced perceived risk of defaulting on its debt, which usually leads to lower borrowing costs and increased investor confidence in the country’s economy.

In her eighth budget presented on Saturday, the finance minister told Parliament that the fiscal deficit for the current year will be at 4.8 per cent of the GDP as had been promised last year, and that it will be brought down to 4.4 per cent in the 2025-26 financial year.