Global rating agency Moody's Investors' Services on Monday said Budget 2008-09 has tried to balance the short-term political compulsions in the run up to national elections with long-term developmental needs.

"Budget 2008-09 tenuously balance short-term political imperatives with long-term developmental needs, while also trying to be consistent with key fiscal targets set forth in the Fiscal Responsibility and Budget Management Act," it said.

With the loan waiver of Rs 60,000 crore (Rs 600 billion) for the farmers in the Budget, the finance minister has focused on poor, less educated rural dwellers. This should boost agricultural incomes in a relatively in-expensive fashion, and at a politically expedient time, Moody's said.

The Budget, being the fifth and the final of the Congress-led UPA government, was expected to lower the fiscal and revenue deficit of the country as proposed under the Fiscal Responsibility and Budget Management Act (FRBMA) legislation.

"The Budget is also particularly interesting as it marks not only the last for the Congress-led United Progressive Alliance government, which is serving its final year, but also because it comes in the terminal year of the FRBMA," Moody's Vice President Aninda Mitra said.

FRBMA provides a legal and institutional framework to bring down the fiscal deficit and contain the growth of public debt. Remarking that the government does not make a more explicit provision for the Sixth-Pay Commission, Mitra said the Budget did not address the expected hikes of public sector salaries.

"The Budget does not establish a mechanism or time-frame for transferring above the line (reducing or eliminating) sizable off-Budget liabilities (especially, oil and fertiliser subsidies)," Mitra said.

He further highlighted that by not addressing these issues the risk on the economy would rise further. "The true extent of fiscal risk is substantially higher than nominally apparent," he added.

Although the Finance Minister, on Sunday, said that buoyancy in revenue collections could meet the additional burden to pay the salary hike of Central government employees after the Sixth Pay Commission submits its report by April 4, Moody's pointed out that the continued revenue buoyancy could still underpin a level of fiscal performance that is consistent with incremental improvements in debt ratios.

"The projected growth in the central government's Budget expenditure looks extremely conservative, and this could very well be designed to make headroom for meeting additional expenses related to the Sixth Pay Commission's public sector wage recommendations," Mitra added.

Moody's further pointed out that on account of less discretionary control over its employees' salaries, the central government's credit fundamentals would become increasingly dependent on the momentum of GDP growth and the buoyancy of tax revenues.

The Budget's revenue assumptions also remain strong, with direct taxes expected to grow. Meanwhile, the broadening of the service tax base has also rapidly begun adding to the overall tax take, Mitra added. 

Your Budget search made easy!