Budget's fiscal consolidation roadmap to stabilise debt burden: Moody's

Debt overhang offsets country's growth potential, says rating agency

India’s Budget for 2023-24 keeps fiscal consolidation intact and will help stabilise the government’s debt burden relative to nominal Gross Domestic Product (GDP), said Moody’s on Wednesday.

The global rating agency, however, flagged risks of debt overhang. High debt burden and weak debt affordability could offset India’s fundamental strengths of high growth potential and deep domestic capital markets,

Finance Minister Nirmala Sithraman, in her Budget speech, said the government has stuck to a fiscal deficit estimate of 6.4 per cent of GDP for 2022-23. For FY24, the fiscal deficit is estimated to be 5.9 per cent of GDP.

The government would continue on the path of fiscal consolidation with a fairly steady decline over the period, reaching a fiscal deficit below 4.5 per cent of GDP by 2025-26, said Sithraman.

Christian de Guzman, senior vice president, Moody’s Investors Service, said the narrower deficit forecast for 2023-24 underscores the government’s commitment to longer-term fiscal sustainability. The Budget supports the economy amid high inflation and a challenging global environment.

Although changes to the tax regime will forego some revenue, the Budget predicts largely buoyant revenue on the back of strong nominal GDP growth and gains from tax administration. It will help mitigate pressures on debt affordability from increasing debt servicing costs associated with rising interest rates.

The Budget’s emphasis on capital expenditure suggests an ongoing improvement in the quality of spending, said de Guzman.