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‘GST rollout, infrastructure funding an uphill task’

Moody’s has a ‘positive’ outlook on its ‘Baa3’ rating on India

Policy Pulse
Publish Date: Apr 27 2016 12:07PM | Updated Date: Apr 27 2016 12:08PM

‘GST rollout, infrastructure funding an uphill task’

 Implementation of Goods and Services Tax (GST) and reducing nfrastructure deficit are tough  tasks before Indian government, Moody’s Investors Service has said.

 

In a report, it said a history of double-digit inflation, raised government debt, weak infrastructure and a complex regulatory regime have controlled India’s credit profile.
 
“We also expect that some aspects of the government’s policy agenda — such as the implementation of GST and bridging India’s large infrastructure deficit will still face an uphill climb,” it said.
 
As a constructive, Moody’s added that easing constraints on investment along with RBI’s inflation targeting and current efforts to clean up bank balancesheets could propel growth.
 
Moody’s has a ‘positive’ outlook on its ‘Baa3’ rating on India, which is just a notch above the junk grade.
 
“Our positive outlook on India’s rating is based on our expectation of continued but gradual policy efforts to reduce the sovereign risks posed by high fiscal deficits, volatile inflation and weak bank balancesheets,” it said.
 
“The government has, in successive Budgets, stuck to its fiscal consolidation targets. Meanwhile, the central bank’s adoption of inflation targeting and ongoing efforts to clean up bank balancesheets will lower financial risks that would otherwise develop as growth accelerated.”
 
Centre has eased restrictions on private investment, both foreign and domestic, which should support growth and the balance of payments.
 
Indirect tax reform GST is presently stuck in the Rajya Sabha where the ruling NDA does not enjoy a majority. 
 
Government is also working on steps to improve India’s infrastructure and is looking for avenues to fund development. It has set up a maiden sovereign wealth fund, NIIF, and is looking for investors to buy 51 per cent stake in it. The government holds 49 per cent in NIIF.
 
In its report on Asia-Pacific sovereigns, Moody’s said high levels of public and private sector debt may weigh on sovereign credit quality as growth cools and financing conditions stiffen.
 
“Each government’s policy effectiveness will determine how its credit profile navigates this climate of subdued demand and greater financial uncertainty,” it said.
 
According to it, policymakers in Asia face challenge of revitalising domestic growth in an environment of depressed global demand.
 
“Lower commodity prices and muted inflation offer monetary policy space to many central banks. However, most countries in the Asia-Pacific have less room for fiscal stimulus than they did prior to the global financial crisis,” the rating agency noted.