India could see some risks to FY26 fiscal deficit target of 4.5% of GDP: Moody's analyst

The Indian federal government's aim to achieve a fiscal deficit target of 4.5% of gross domestic product (GDP) by 2025/26 could see some risks, an analyst at Moody's Investors Service said on Wednesday.

"The current pattern suggests that perhaps there could be some upward pressure on expenditure especially if they (government) continue with this focus on capex," the rating agency's senior vice president, Christian de Guzman, told Reuters.

The government's budget gap, which hit a high of 9.5% of GDP in 2020/21 as the spread of COVID-19 infections brought the economy to a halt, has narrowed since but remains well above the medium-term goal of 4.5% of GDP by 2025/26.


India's federal government will target a budget deficit of 5.9% of GDP for 2023/24, Finance Minister Nirmala Sitharaman said in her budget speech.

Earlier in a statement, Moody's said the narrower fiscal deficit underscores the government's commitment to longer-term fiscal sustainability. The rating agency added that the high debt burden and weak debt affordability remain key constraints that offset India's fundamental strengths.