ET NowIn a chat with ET Now, Atsi Sheth, Senior Vice President, Sovereign Risk Group, Moody’s Investors Service, shares her views on the Budget and the quality of fiscal consolidation. Excerpts:
ET Now: What do you make of the budget numbers? On the face of it, are they impressive?
Atsi Sheth: To be quite honest, from the sovereign credit perspective, we may not move the dial on the exact number of the deficit and the borrowing requirement. This is because India’s fiscal deficit - be it 3.6% or 3.9% - is higher than about 70% of the countries that we rate, because we look at the deficit of not just the Central government but also the state governments. So, from that perspective, even when it comes down to 3%, it is going to be higher than most of the countries we rate.
Therefore, from our perspective, the number was not that material or meaningful. The budget said that the government will give privilege to growth over fiscal consolidation.
ET Now: What is your view on the quality of fiscal consolidation? There has been decline in tax revenue and plan expenditure. What is your take?
Atsi Sheth: One of the things that had been anticipated in this budget was that the expenditures, particularly, would shift away from current and towards capital. Now, while the budget has made a lot of commitment to infrastructure spending and talked about public investment on the face of it, having just looked at the numbers, it does not look like that the composition of expenditure has changed a lot. On the revenues side, certainly there has been a move to incentivise investment, through some of the tax cuts on the corporate side and some indirect tax changes as well. Some consumption boost has come in through tax benefits and that again is a policy position that the government has taken of privileging growth. This means it will come at some cost to the government’s own finances.
ET Now: It seems S&P is not going to review their ratings on India for another 12 months. What is the call at Moody’s post the budget?
Atsi Sheth: We think that this budget, if it does nothing else, has underscored our own view on India’s sovereign credit profile. India’s sovereign credit profile is supported by its growth -- not just current growth, but also its potential growth and its future growth. This budget supports that.
Secondly, the sovereign rating is that it is constrained by the fiscal position of the government. The fact is that this government with a parliamentary majority and with a robust growth outlook could not actually achieve fiscal consolidation in the timeframe that it has set for itself, which tells you how difficult fiscal consolidation is in India and that is something that also plays in the rating.
ET Now: What do you make of the budget numbers? On the face of it, are they impressive?
Atsi Sheth: To be quite honest, from the sovereign credit perspective, we may not move the dial on the exact number of the deficit and the borrowing requirement. This is because India’s fiscal deficit - be it 3.6% or 3.9% - is higher than about 70% of the countries that we rate, because we look at the deficit of not just the Central government but also the state governments. So, from that perspective, even when it comes down to 3%, it is going to be higher than most of the countries we rate.
Therefore, from our perspective, the number was not that material or meaningful. The budget said that the government will give privilege to growth over fiscal consolidation.
ET Now: What is your view on the quality of fiscal consolidation? There has been decline in tax revenue and plan expenditure. What is your take?
Atsi Sheth: One of the things that had been anticipated in this budget was that the expenditures, particularly, would shift away from current and towards capital. Now, while the budget has made a lot of commitment to infrastructure spending and talked about public investment on the face of it, having just looked at the numbers, it does not look like that the composition of expenditure has changed a lot. On the revenues side, certainly there has been a move to incentivise investment, through some of the tax cuts on the corporate side and some indirect tax changes as well. Some consumption boost has come in through tax benefits and that again is a policy position that the government has taken of privileging growth. This means it will come at some cost to the government’s own finances.
ET Now: It seems S&P is not going to review their ratings on India for another 12 months. What is the call at Moody’s post the budget?
Atsi Sheth: We think that this budget, if it does nothing else, has underscored our own view on India’s sovereign credit profile. India’s sovereign credit profile is supported by its growth -- not just current growth, but also its potential growth and its future growth. This budget supports that.
Secondly, the sovereign rating is that it is constrained by the fiscal position of the government. The fact is that this government with a parliamentary majority and with a robust growth outlook could not actually achieve fiscal consolidation in the timeframe that it has set for itself, which tells you how difficult fiscal consolidation is in India and that is something that also plays in the rating.
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