The government is likely to overshoot its fiscal deficit target for 2018/19 by a small margin following its decision to cut fuel excise duties, Moody's Investors Service said on Tuesday, describing the move as "credit negative".
The government announced cuts in excise duty on petrol and diesel last week, to soften the impact of sharp rise in global crude oil prices on consumers.
The move came a few months before elections in three key states this year followed by national elections due by May.
"These measures create material downside risks to the central government's fiscal deficit target of 3.3 percent of GDP for fiscal 2018," Moody's said, adding that it expected "the central government deficit target to slip modestly to 3.4 percent of GDP".
Moody's said the duty cuts will reduce the government's revenue by Rs 10,500 crore ($1.41 billion). It said the government could reduce capital expenditure to achieve the fiscal deficit target.
Moody's upgraded the country's credit rating to 'Baa2' from 'Baa3' last November accompanied by a 'stable' outlook.
The other two global rating agencies - Standard & Poor's and Fitch Ratings have the lowest investment grade rating of BBB- with 'stable' outlook on India.
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