INSUBCONTINENT EXCLUSIVE:
Moody's warned that while the government could accelerate stake sales in public sector banksPre-election measures and promises made by the
Narendra Modi government to support farmers, small enterprises and low-income households will derail the country's fiscal consolidation
roadmap, a global rating agency said on Friday.Moody's Investors Service, which has already forecast a slippage in fiscal deficit to 3.4 per
cent in the current fiscal against the budgeted target of 3.3 per cent, warns of further slippage in the fiscal consolidation roadmap that
and low-income households, and it is also considering additional steps to support farmers facing financial distress, Moody's said."In the
absence of new revenue boosting measures, the policies will collectively make it harder for the government to achieve its fiscal
consolidation objectives.""If implemented, the proposed measures will cause further slippage from India's fiscal consolidation road map,
which targets reducing the central government's deficit to 3.1 per cent and 3.0 per cent of GDP in fiscal 2019-20 and fiscal 2020-21,
respectively," Moody's said in its report.Besides, the effort to meet the short-term fiscal objectives through one-off sources of revenue
and cuts in capital expenditure would denote low fiscal policy effectiveness, it said and added that the permanent measures would have a
long-lasting impact on public finances.Despite lower-than-planned expenditure, weakening revenue has resulted in the government already
exceeding its full year deficit target for fiscal 2018-19, reaching 114 per cent of the budgeted amount from April to November 2018.It also
said the relief and tax cuts in the Goods and Services Tax (GST) will erode the revenue base near term
In January, the GST Council doubled the income tax exemption limit for firms to Rs 40 lakh in annual revenue and adjusted turnover limits
rates since their initial implementation in July 2017," it said.In December 2018, the government additionally cut GST on more than 20 items
would further undermine the Central government's revenue generation capacity," the rating agency said.Besides, income from divestment of
government assets has been weaker than budgeted in the current fiscal
From April to December 2018, proceeds from divestment only amounted to 42.7 per cent of the Rs 80,000 crore that the government planned to
raise, highlighting the challenges in relying on divestment as a sustained source of revenue.Moody's warned that while the government could
accelerate stake sales in public sector banks and seek special one-off dividend payments or deferments of subsidy payments to
government-related entities, including the Reserve Bank of India, to bridge budget shortfalls, the positive impact on government finances
would be short lived."Achieving deficit reduction through such unpredictable revenue sources denotes weaker fiscal policy effectiveness than
if consolidation were achieved through more durable and predictable revenue sources, such as tax revenue," it added.Finally, the global
credit rating agency said that the proposals to support farmers' income, who are facing financial difficulties due to low crop prices, will
increase government expenditure.The government is considering a slew of measures to support farmers, including introduction of a new direct
income support scheme, a revamped crop insurance scheme and agriculture crop loans at zero interest rates.Without other expenditure
rationalisation, higher subsidy spending on the agricultural sector will increase future fiscal deficits, the report noted
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