India is not yet seeing significant improvement in debt affordability: Moody’s

India has not seen a significant improvement in debt affordability that could justify a reconsideration of the country’s sovereign bond rating, a Moody’s Investors Service analyst said on Thursday, after the government unveiled its latest budget for the upcoming elections.

“I think it is worth bearing in mind that the majority of the Union budget still consists of interest payments,” Senior Vice President Christian de Guzman told Reuters in an interview.

“I think that’s why we might keep the rating at the same level, because there hasn’t been such a significant improvement in debt affordability.”

Moody’s had in August affirmed a ‘Baa3’ rating for India with a stable outlook. A higher rating implies lower economic risk, allowing a country to borrow at lower rates.

However, Guzman said the government’s fiscal consolidation trend remains intact, which is positive, but that more “proactive” revenue generation measures will be crucial to meet the 4.5% budget deficit target to be reached by 2025/2026.

Government spending may have to do the heavy lifting in fiscal deficit consolidation, which could prove challenging, he added.

India will sharply reduce its fiscal deficit to 5.1% of gross domestic product (GDP) by 2024/2025, Finance Minister Nirmala Sitharaman announced in her budget presentation, while the deficit for the current fiscal will be reduced by 10 basis points to 5. .8%.

India’s economic growth is “very healthy” and that should help the government maintain a lot of momentum in areas like revenue generation, Guzman said.

Moody’s expects India’s real gross domestic product to grow by 6.2% in 2024/2025.

However, the government may have to support the economy due to concerns about global inflationary pressures and climate-related and geopolitical risks, he said.

Thursday’s interim budget implies a degree of confidence among the current government “that they don’t actually need to boost the economy to win these elections,” Guzman said, adding that the rating agency assumes that overall political stability in India will persist.

First print: February 1, 2024 | 4:35 PM IST