While India is making strides toward fiscal discipline and inflation control, Moody’s maintains that for a rating upgrade, a substantial reduction in the debt burden and more significant revenue-generating measures are essential.
Despite recent improvements, the fiscal deficit and debt-to-GDP ratio remain wider than pre-pandemic levels, with debt servicing costs continuing to take up the largest portion of the budget, even surpassing infrastructure spending, it believed.
A ratings upgrade indicates a reduced perceived risk of defaulting on its debt, which usually leads to lower borrowing costs and increased investor confidence in the country’s economy.
In her eighth budget presented on Saturday, the finance minister told Parliament that the fiscal deficit for the current year will be at 4.8 percent of the GDP as had been promised last year, and that it will be brought down to 4.4 percent in the 2025-26 financial year.
“Equally to give a long term perspective, we have said that we will manage our debt in such a way that the debt-to-GDP ratio will be continuously” reduced as outlined in an expert committee report, she said, adding debt will be brought down.
The government has volunteered to say that it will manage the debt. “From last year itself we said that we will manage our debt from now so that it comes down to the level recommended by that committee,” she said.
The steps taken by the government under Prime Minister Narendra Modi are ones that many of the advanced economies are not doing.
“I’m not comparing my size with any advanced country. But in terms of the principle, cutting down debt to GDP, maintaining fiscal deficit — these are relentlessly being followed without any negative impact on social welfare schemes, education or health,” she said.
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