High fiscal deficit, inflation cap rating upgrade: Moody's

Mumbai: Despite positive growth figures achieved by the economy in the first quarter, rating agency Moody’s today said high fiscal deficit and sticky inflation limit chances of an upward revision in the country's sovereign  ratings.  "We forecast fiscal (deficit), inflation and infrastructure metrics to remain weaker than the median for similarly rated peers. 

"While stronger growth in this large and diverse economy will help counterbalance these credit challenges, they limit further upward momentum in the sovereign rating," Moody’s Investors Service said in a note issued from Singapore. The government has committed a 4.1 per cent fiscal deficit target for the fiscal, but has already exhausted over 61 per cent of the fiscal's target in the first four months  itself.  Inflation measured by consumer price index continues to  skirt around the 8 per cent mark, with upward pressures being  exerted by food prices due to weak monsoon. 

The agency, which has a 'Baa3' rating with a stable  outlook on the country, said the 5.7 per cent GDP print in the  April-June period is in line with its "long-held view that  growth deceleration to sub-5 per cent levels over the past two  years would reverse over time."  The agency further said it is due to this view that it has maintained a 'stable outlook' in spite of issues like  currency volatility, declining private and public investments  and poor market sentiment (in the past two fiscals due to  adverse tax policies of the previous regime). 

Moody's said the higher growth numbers in Q1 will help  improve tax revenues and capital flows into the country, and  can also help reverse the weakening metrics that have occurred  in the fiscal and external position in recent years.  Additionally, Moody's said the macroeconomic outlook will improve if the government is able to "implement policies that  ease inflationary pressures and increase infrastructure  investment".  The Finance Ministry has been meeting representatives from rating agencies since mid-August to project the positives about the country. 

After the release of official data pointing to a 5.7 per  cent jump during the first quarter, coming after two  consecutive fiscals of sub-5 per cent growth, Finance  Secretary Arvind Mayaram had said that he expects some  positive action from the international rating agencies. PTI AA  BEN DK  STS  09031431  NNNN