12,352.35-3.15
Stock Analysis, IPO, Mutual Funds, Bonds & More

Fiscal cost of pay revision unlikely to impact India’s ratings, says Moody’s

India’s fiscal challenges on account of the new pay commission implementation is unlikely to impact the country’s sovereign ratings that is at the lowest notch of investment grade, Moody’s Ratings has said.

, ET Bureau|
Updated: Jan 13, 2016, 07.09 PM IST
0Comments
India’s fiscal challenges on account of the new pay commission implementation is unlikely to impact the country’s sovereign ratings that is at the lowest notch of investment grade, Moody’s Ratings has said.
India’s fiscal challenges on account of the new pay commission implementation is unlikely to impact the country’s sovereign ratings that is at the lowest notch of investment grade, Moody’s Ratings has said.
MUMBAI: India’s fiscal challenges on account of the new pay commission implementation is unlikely to impact the country’s sovereign ratings that is at the lowest notch of investment grade, Moody’s Ratings has said.

The government is expected to take a hit of Rs 1 lakh crore on account of implementing the recommendation of the seventh pay commission, making it difficult to meet its fiscal deficit target of 3.9% of GDP. The fiscal cost, however, could be partially neutralised by ways of lower subsidy outgo due to softer global commodity prices, the global ratings firm said.

“From a ratings perspective, India’s fiscal challenges are already incorporated into our ratings” said Atsi Seth, associate managing director at Moody’s sovereign risk group. “What we are seeing this year validates our long held view. It does not change it,” she said.

India’s fiscal trends are dependent on its macroeconomic trends.

“In the past when the fiscal deficit has been challenging it has sometimes been because of commodity prices increases adding to the subsidy bill. This year low commodity prices have supported the fiscal position. But subdued domestic consumption and low corporate profiles have kept the government revenues from rising,” Seth said.

Aditi Nayar, economist at Moody’s India subsidiary Icra, said, “Absorbing the fiscal cost of the pay revision is certainly challenging but not insurmountable in an environment of low oil and gas prices, which are allowing for higher excise collections on fuels and dampening fuel and fertiliser subsidies.”

She said higher incomes and consumption post the pay revision would also boost the government's collection of personal income tax, excise duty and service tax to some extent.

Dividends and disinvestment flows too could be channelled to ensure a healthy expansion of government capital expenditure, Nayar said.

Inflation and corporate profit trends in 2016 are expected to offer clues as to whether the government’s policy efforts have successfully created conditions for growth for the next three to four years.

Comments
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links


Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service