This article analyzes India’s federal budget 2024-2025, its fiscal consolidation efforts, and Moody’s Ratings’ assessment, which characterized the budget as “tactical” rather than a “breakthrough.” It explores the implications for India’s sovereign credit profile and economic trajectory.
Moody’s Assessment of India’s Budget
Moody’s Ratings, through Senior Vice President Christian de Guzman, described India’s latest federal budget as “tactical” rather than a “breakthrough.” This characterization points to a steady, incremental approach rather than radical structural shifts that might trigger an immediate rating upgrade.
Key Fiscal Targets
- ● Reduction in fiscal deficit from 4.4% to 4.3% in the current financial year.
- ● Projected shift from 5.1% to 4.9% for the coming year.
- ● Long-term ambition to reach 4.5% by FY26.
Moody’s suggests these incremental improvements are not yet sufficient to fundamentally alter India’s credit profile. Currently, the agency affirms India’s sovereign ratings at Baa3 with a “stable” outlook, which remains the lowest investment-grade tier.
Understanding Sovereign Credit Ratings
Sovereign credit ratings, provided by agencies like Moody’s, S&P, and Fitch, evaluate a country’s ability to meet financial obligations. They are the bedrock of global financial trust.
Investor Confidence
Crucial for attracting foreign direct investment (FDI) and portfolio flows into the domestic market.
Lower Borrowing Costs
A higher rating directly translates to lower interest rates on government loans and international debt.
Economic Stability
Signals health, policy consistency, and the overall resilience of the nation’s financial architecture.
Global Standing
Serves as a global indicator of economic strength and responsible governance among peers.
Budget 2024-2025: Strategic Pillars
The latest budget focuses on driving personal consumption and long-term economic growth through strategic investments.
- Capital Expenditure (CapEx) INR 11.11 lakh crore (3.4% of GDP) allocated for infrastructure development (roads, railways, ports, digital networks) to enhance productivity.
- Rural & Agriculture INR 2.66 lakh crore for rural development and over INR 1.5 lakh crore for agriculture, focusing on climate resilience and market access.
- Employment & Skilling A package of five schemes to provide skilling for 4.1 crore youth over five years with a massive INR 2 lakh crore outlay.
- Innovation & MSMEs Abolition of the ‘angel tax’ for all investor classes and ‘plug and play’ industrial parks in nearly 100 cities to support the MSME sector.
Fiscal Consolidation: The Core Challenge
Progress has been notable, with India reducing its fiscal deficit from 9.2% of GDP in FY 2020-21 to an estimated 5.6% in FY 2023-24.
“Despite consistent efforts, the deficit remains wider than pre-COVID-19 levels. The pace of reduction is considered incremental, not sufficient for a credit profile upgrade.”
Moody’s points out that the reduction in the central government deficit for FY2025-26 to 4.4% of GDP is roughly half the pace of reduction observed in the preceding two fiscal years, suggesting a deceleration in consolidation momentum.
Nuances of Fiscal Health
Several structural factors weigh on the assessment:
- High Debt-to-GDP Projected to stabilize around 80%, higher than many similarly-rated peers.
- Interest Burden Interest payments are expected to be the highest relative to revenue among peers, limiting fiscal maneuverability.
Economic Growth Trajectory
While fiscal metrics are tight, India’s growth engine remains robust. Moody’s recently raised India’s growth projections:
7.4 % FY 2025-26
6.4 % 2024-25
6.6 % 2025-26
Drivers: Improving rural demand, strong industrial sectors, and sustained CapEx execution.
Future Roadmap: The Debt Benchmark
Starting in 2026-27, India plans to shift its primary fiscal policy benchmark to Debt-to-GDP. This is a significant shift in strategy.
The government aims to reduce central government debt to approximately:
50% of GDP
Target Deadline: March 31, 2031
Conclusion
India’s budget balances ambitious growth targets with fiscal prudence. Moody’s “tactical” assessment reflects strong fundamentals and growth but notes that incremental fiscal improvements and a higher-than-peer debt burden prevent an immediate upgrade.
Sustained and more significant fiscal improvements, along with the successful implementation of the new debt-to-GDP benchmark, are crucial for India to achieve a “breakthrough” in its sovereign credit rating and solidify its global economic position.
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