Mumbai: International rating agency Moody's Investors Service on Tuesday warned that weak growth prospects for India will complicate the government's fiscal consolidation efforts, weighing on the sovereign's credit quality.
Simultaneously delivering on fiscal consolidation and raising incomes will be extremely challenging for India's authorities, particularly since growth is likely to remain weak over the coming year, Moody's said in a statement.
It said that this conclusion was made after analyzing India's full budget for the fiscal year ending March 2020 - announced on July 5, - which showed that the budget targeted a slightly lower deficit of 3.3 per cent of GDP for fiscal 2019 than what the government had predicted in the interim budget in February, but also a more gradual decline in government debt.
It said that the budget announcements are credit positive for public sector banks, non-bank finance companies (NBFCs), the infrastructure sector, property developers, some domestic producers and securitization transactions.
"Specifically, a material Rs 70,000 crore capital infusion into public sector banks and a temporary credit guarantee facility to alleviate tight liquidity for NBFCs are measures that are credit positive for the relevant entities and should encourage the flow of credit to the economy and support growth," the rating agency said.
The hike in customs duties on certain imported products will increase the competitiveness of domestic producers, while new incentives for the purchase of affordable homes will be credit positive for Indian property developers. And plans to increase public spending on infrastructure and expand funding sources to these companies are credit positive for the sector, it said.
As for the funding support and regulatory strengthening for the NBFC sector, such measures are credit positive for Indian securitization deals because funding support reduces the risk that NBFCs will face liquidity shortfalls that disrupt their ability to collect repayments on loans backing asset-backed securities and residential mortgage-backed securities.
However, any reductions in the government's stakes in oil companies could lower Moody's assessment of official support for these firms, a credit negative for the sector, it said.