Mumbai: India's budget represents a strong
intention to renew fiscal discipline, which coupled with a fuel price increase
announced on the same day are positive for its sovereign rating, Moody's
Investor's Service said on Tuesday.
Finance Minister Pranab Mukherjee on Friday
trimmed some of last year's heavy economic stimulus and said the government
plans to cut the fiscal deficit to 5.5 percent of the GDP from 6.9 percent this
year.
Moody's rates
rating as Ba2 and assigned a positive outlook in December 2009.
"Alongside a rebounding economy, a
well-calibrated exit strategy from its stimulus measures if complemented by
medium-term fiscal consolidation ... will facilitate a reasonably rapid rate of
debt reduction to 70 percent of GDP in 2-3 years, down from the current 78
percent," said Aninda Mitra, vice-president- senior analyst at Moody's.
The petroleum ministry raised gasoline
prices by 6 percent and diesel prices by 7.75 percent on Friday after the
finance minister increased factory-gate taxes and import duties on the fuels in
the budget on Friday.
Moody's expects the combined fiscal
deficits for the central government and states to narrow to 8 percent of GDP
from 10 percent in the current fiscal year, he added in the note.
Even though the government's fiscal
consolidation efforts could run into headwinds from political opposition or
external shocks, the programme stands a strong chance of remaining on track,
Mitra said.
"...forthcoming adjustments to fuel
price subsidies or a rationalization of the underlying subsidy mechanism itself
would also be credit positive," he added.
Receipts from the expected auction of 3G
licenses and acceleration of divestments combined with the implementation of
goods and services tax in April 2011 will also support overall fiscal
consolidation, according to the note.
Bureau Report
