The Union Budget lacks any tangible measures to increase revenue generation even though the capital expenditure plans have gone up significantly and the fiscal deficit estimate suggests that the government is relying too much on strong growth to help drive fiscal consolidation, rating agency Moody's said in a note.
The budget underscores government's previous emphasis on capex to sustain near-term recovery from the pandemic, while simultaneously paving the way for longer-term restructuring of the economy, it stated.
But the various spending initiatives are not offset by any significant announcements related to further increase revenue generation; rather, the announced revenue-related measures are aimed at other objectives such as fostering startup innovation, ensuring more equitable treatment for cooperatives and state employees, and promoting tax compliance through simplification, Christian de Guzman, a senior vice-president, sovereign risk group, Moody's Investors Service, said.
On the fiscal consolidation front, he said the target for the central deficit to narrow to 6.4 per cent in FY23 from a 6.9 per cent in FY22 suggests government is relying on strong growth to help drive fiscal consolidation in light of the large bump in capex, which is up by 35 per cent for the next fiscal and this poses some uncertainty given the prevalence of the pandemic-related risks.
The wider-than-expected deficit in the current fiscal in part reflects higher spending on the back of the second wave as well as a larger subsidy bill that was driven by higher food and commodity prices.
On a general government basis, states' finances also continue to pose challenges to fiscal consolidation given higher spending by way of higher allocation for assistance for states capex and higher 4 per cent of GSDP allowed as fiscal deficit.
He, however, said the budget further cements New Delhi's stated commitment to achieve net-zero carbon emissions by 2070.
The focus on climate-related initiatives in the budget signals the government's broadening commitment towards achieving net-zero carbon emissions by 2070. The measures like using sovereign green bonds and to significantly increase subsidies to promote solar power generation are a good start, he said.
