Continuing growth slowdown and tax cuts will make it difficult to achieve gross revenue target and stick to 3.5 percent fiscal deficit projected for 2020-21 in the Union Budget, rating agency Moody’s said.
“The new budget calls for a modest narrowing of the fiscal deficit at 3.5 percent in FY21 from 3.8 percent in FY20, but sustained weaker growth and tax cuts would make gross revenue target difficult to achieve,” Moody’s said in a statement after the Budget.
The government has limited room to reduce expenditure without further weakening growth, it noted. “While government remains committed to medium-term fiscal consolidation, any material strengthening in public finances will likely be limited in the near-term, and debt burden will remain sensitive to changes in nominal GDP growth,” the agency said.
The Budget highlights the challenges to fiscal consolidation from slower and nominal growth, which may continue for longer than the government forecast, it added.
“This risk is reflected in Moody’s negative outlook on the rating,” it said.