Moody’s says India’s budget is moderately credit positive

Moody’s Investors Service said India’s fiscal 2017 budget was moderately credit positive for most sectors, but efforts at deficit reduction will remain challenging, while the effects for public-sector banks were negative.

“The budget is modestly credit positive for the sovereign, since it indicates a continued commitment to gradual fiscal consolidation by bringing down fiscal deficits to 3 percent over the next two years,” said Atsi Sheth, a Moody’s Associate Managing Director for the Sovereign Risk Group.

“However, the proposals did not contain significant measures to address structural fiscal challenges, such as the government’s low tax revenue base and the vulnerability of government finances to economic shocks,” he added.

This situation suggests that any deficit reduction will come from either cyclical upswings or tactical fiscal management, rather than a broad-based fiscal consolidation strategy, Sheth pointed out.

The budget’s changes on tax and duties changes are credit positive for energy and commodity producers, but negative for automakers. Changes to levies on crude oil will lower cash production costs for national oil companies, but will not compensate for the impact of lower oil prices, Moody’s said in a report.

Increased duties on primary aluminum, aluminum products and zinc alloy should provide a marginal benefit to Indian miners, as will the abolished duties on the export of iron ore fines, it said, adding that the introduction of a levy on passenger cars will raise prices across the automobile sector and potentially weigh on sales volumes for local manufacturers.

Moody’s further said that infrastructure will benefit from a boost in spending, but not all are winners; for example, a rise in public infrastructure spending that is partly financed through the introduction of a levy on motor vehicles is credit positive. On the other hand, infrastructure projects commissioned from April 2017 onwards will no longer benefit from a tax holiday, which will be negative for the sector.


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