Global credit rating agency Moody’s Investor Service said on Wednesday that the Narendra Modi-led government is likely to breach its fiscal deficit target for 2018-’19, because of higher-than-budgeted oil prices and rising interest rates. The Centre had set the fiscal deficit target at 3.3% of Gross Domestic Product this financial year.
Fiscal deficit is the difference between the government’s revenue and expenditure.
“Higher-than-budgeted oil prices will add to short-term fiscal pressures, which points to a higher risk that the government’s deficit objective will not be met,” Moody’s said in a report, according to Mint. Moody’s said tightening global financial conditions have hurt India’s already weak debt affordability and further limited the government’s space to pursue a fiscal policy of its choice.
“Oil prices at current levels will raise expenditures and add to existing pressures on the fiscal position stemming from the lowering of Goods and Services Tax rate on several consumer goods,” the agency observed. A tax cut for small businesses and a relatively high minimum support price for agriculture will also add to the fiscal pressure, Moody’s said.
The agency added that even if the government cuts back capital expenditure, it may not be sufficient to offset revenue losses. Elections to the Lok Sabha and several state Assemblies around the end of the financial year mean that the states’ deficits may continue to widen.
“We therefore see risks that the central government deficit will be wider than targeted,” Moody’s said.