Moody's Insights on India's Fiscal Strategy

Global ratings agency Moody's Ratings has highlighted that India's latest budget suggests a deceleration in fiscal consolidation, with a renewed emphasis on bolstering growth. Despite this, the government is on track to achieve its near-term fiscal deficit target of 4.5% by the fiscal year 2025-26.

Impact of Tax Cuts on Consumption and Fiscal Health

Moody's notes that the planned reductions in personal income tax rates are expected to enhance the spending power of the middle class, thereby stimulating consumption. This development is seen as credit positive for numerous corporations and the financial sector. However, the anticipated decrease in revenue may slow down the pace of fiscal consolidation, even as total spending as a share of GDP declines.

Government's Fiscal Deficit Targets

In the budget for the fiscal year ending March 2026, the government aims for a central government deficit of 4.4% of GDP, marking a 0.4 percentage point reduction from the revised estimate of 4.8% for fiscal 2024-25. This adjustment indicates a slower pace of fiscal consolidation compared to the previous two fiscal years.