Government Likely To Meet 3.3% Fiscal Deficit Target For FY19, Says Moody's

Moody's expects the Indian government to meet its fiscal deficit target of 3.3 per cent of GDP for the current fiscal based on its commitment to gradual fiscal consolidation and budget assumptions, even as the US rating agency's Indian affiliate ICRA said that high global crude prices threaten India's current account deficit (CAD), according to reports issued on Thursday.

Moody's Investors Service has rated India's sovereign credit rating at Baa2 stable. 

"Although Moody's sees some downside risk to budgeted revenue and expenditure targets, it expects that the government would cut back on planned capital expenditure, as has occurred in past years, if it is needed to offset any slippage from its fiscal targets," said Moody's Vice President William Foster.

"On the revenue side, Moody's sees some downside risk to the government's assumptions on the collections from the Goods and Services Tax (GST) and petroleum products excise duty," he said.

The ICRA report said that high crude oil prices are likely to widen India's CAD and points to slowing foreign portfolio investments as an area of concern.

Moody's said that the credit quality of Indian non-financial corporates will remain supported by a robust growth outlook for the domestic economy and a benign outlook for global economic growth. 

ICRA believes the non-infra corporate sector has seen some revival in growth and margin expansion over last 2-3 quarters.

The American agency said, however, that given their international revenue base, many rated Indian non-financial corporates remain exposed to increasing protectionism and tighter monetary policy in the US.

Moody's feels domestic bank funding availability could weaken as the banking system struggles with fresh asset quality and governance issues.

ICRA said that with the accelerated recognition of stressed assets during 2017-18, the asset quality problems of the banks peaked in March 2018 and further additions to gross non-performing assets (GNPAs), or bad loans, will decline with fresh slippages falling to around 3 per cent during the current fiscal, compared to 7.1 per cent last year and 5.5 per cent in 2016-17.

The sharp rise in fresh slippages, ageing of earlier NPAs because of limited resolution, and higher provisioning on accounts referred for resolution under the Insolvency and Bankruptcy Code pushed up credit provisions and net losses for the sector, ICRA added.

"Rural demand, which has seen a recent pick-up, would be critically dependent on normal monsoon, hike in MSPs (minimum support prices) and overall thrust on agri-economy ahead of elections," said ICRA Senior Group Vice President Subrata Ray. 

Moody's has a stable outlook on India's power sector which reflects an improvement in domestic coal availability moderating the fuel supply risk. 

Moody's also said that while distribution utilities have seen an improvement in their liquidity, the extent to which operational efficiency has improved is still unclear.