Moody's: India's ratings constrained due to high fiscal deficit

NEW DELHI: India's credit ratings are constrained due to its high fiscal deficit, said Moody's on Tuesday, adding that the scenario of low growth and high inflation is likely to persist for the next few quarters.

"Inflation is still high & growth is still stuck at a low rate," said Moody's. "Food prices driving inflation is a serious of concern," it added. While the rating agency acknowledged that the macroeconomic fundamentals have improved since May due to a better Current Account Deficit ( CAD), it went on to say that planned expenditure will be cut to meet fiscal deficit target.

"Finance Ministry is committed to meet fiscal gap target of 4.8%," it said. "The fact that most of the fiscal gap is financed domestically is a credit support," it added.

According to Moody's FIIs are wary about India's political situation. " General elections will impact the capital flows coming in," it opined. "There is a need t monitor whether capital flows into India remain robust," it said.

Moody's also doesn't see the Indian rupee appreciating or depreciating too much. "Don't expect Rupee to either appreciate or depreciate sharply. Rupee is expected to remain in current range," it said.

Commenting on the foreign trade, Moody's said that since global growth is expected to remain at current levels, it will aid India's exports. "Imports will remain subdued as growth remains sluggish," it said.

Talking about India's infrastructure sector, Moody's was of the opinion that the country's infra doesn't compare well to other Emerging Markets. It emphasised that improvement in infrastructure will help India grow faster.