Moody’s expects deficit to widen

New Delhi: Global rating agency Moody’s Investors Service said on Wednesday that it sees the risk of the Central government fiscal deficit overshooting the target of 3.3 per cent due to higher oil prices.

Moody’s said it expects current account deficit to widen to 2.5 per cent of GDP in the fiscal year ending March 2019, from 1.5 per cent in fiscal 2018, driven by higher oil prices and robust non-oil import demand.

The agency said it continues to assess India’s external vulnerability risk as low because economy-wide external debt is limited and the country’s foreign exchange reserve buffers are ample.

“Higher-than-budgeted oil prices will add to short-term fiscal pressures, which points to a higher risk that the government’s deficit objective will not be met,” said Moody’s.

Moody’s said India’s deregulation of both diesel and petrol prices has reduced the fiscal impact of rising oil prices. However, LPG and kerosene remain regulated and subject to subsidies, which were budgeted at 0.5 per cent of government expenditures for fiscal 2019.

Moody’s said that although the government may cut back on capital expenditures to limit fiscal slippage, as has happened in previous years, such cuts may not fully offset the revenue losses and higher spending on energy subsidies and crops’ price support.