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Informist, Wednesday, Jan. 15, 2025

 

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--Moody's: Growth to be softer in India in 2025 compared to 2024 
--Moody's:India defence spending to grow rapidly on China, Pakistan tensions 
--Moody's: India debt affordability to remain much weaker than rated peers 
--Moody's: See India debt staying significantly higher than Baa-rated peers 
--Moody's: Expect only gradual fiscal consolidation in India in 2025 
--Moody's: India fiscal conditions to constrain credit strength in 2025 

 

NEW DELHI – India's fiscal consolidation in 2025 is expected to be only gradual, Moody's Ratings said in a report Wednesday. The commentary comes a fortnight before Finance Minister Nirmala Sitharaman presents the Budget for 2025-26 (Apr-Mar). While the government is well on track to reduce its fiscal deficit to 4.9% of GDP in FY25, and is also closing in on its medium-term target of 4.5% fiscal deficit by FY26, there are apprehensions on the future of fiscal consolidation in the country. 

 

It was initially expected that the deficit-reduction trajectory would return to the mandated 3.0%, but Sitharaman had said in her FY25 Budget speech that the government will now shift its focus on reducing the debt-to-GDP ratio. The fiscal deficit reduction will happen in line with debt reduction, she had said. Moody's said that in 2025, India's debt will remain significantly higher than the Baa-rated peer median of around 57%. According to Budget documents, in FY25, only central government debt is around that level. 

 

Moody's, in their Asia-Pacific 2025 Outlook, also said that India's debt affordability is expected to remain much weaker than rated peers. The size of its debt burden, and the affordability of its debt, both of which Moody's red-flagged for India in 2025, are the two key metrics that India needs to drastically improve for a sovereign rating upgrade. The government has been pitching that India, which is currently rated at the lowest rung of investment grade at Baa3 by Moody's, deserves a much higher rating because of its economic resilience and stable fundamentals.

 

The government's change in policy focus to reduce the debt-to-GDP ratio, which emphasised lowering interest payments, was seen aligned with the assessment of rating agencies. The Budget for FY25 has pegged the government's interest expense for the current fiscal at INR 11.63 trillion. For the central and state governments combined, the interest payments-to-revenue ratio is around 25%, which means 25% of revenue is dedicated to debt servicing.

 

"India's fiscal conditions will continue to constrain its credit strength in 2025," the ratings agency said. Speaking about the social and geopolitical issues posing significant economic and fiscal risks, it said India's defence spending will grow rapidly this year amid tensions with China and Pakistan.

 

SOFTER GROWTH

Aligned with the sharp slowdown in the economy, Moody's Ratings said India's growth is expected to be softer in 2025 compared to 2024. In November, the agency had forecast India's GDP growth at 6.6% in 2025 and 6.5% in 2026. 

 

India's GDP growth is estimated to moderate to a four-year low of 6.4% in the current financial year ending March, according to the first advance estimate released by the statistics ministry. The current slowdown in GDP growth in FY25 is mainly because of weaker industrial activity, particularly in the mining and manufacturing sectors. On the other hand, weak consumption in the economy is also taking a toll.

 

"In India, household spending, private and public infrastructure investment will support expansion (in 2025)," the ratings agency said. This augers well for the economy as government spending has been the key driver of economic growth in the post-COVID period. End

 

Reported by Priyasmita Dutta

Edited by Tanima Banerjee

 

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