Challenging for Modi's coalition government to pass bigger reforms: Moody's

India's fiscal deficit glide path for 2025-26 is reasonable, but a coalition government at the center may challenge the passage of necessary economic reforms, an analyst at Moody's Ratings said on Tuesday.

"The question is about whether or not the coalition government and kind of the trade offs required in the coalition are going to be an impediment," Gene Fang, Associate Managing Director, Sovereign Risk at Moody's Ratings told Reuters in an interview.

"I think it's certainly a challenge."


Prime Minister Narendra Modi's Bharatiya Janata Party (BJP) failed to secure an outright majority in the general election last month, making it dependent on regional parties like Chandrababu Naidu's TDP and Nitish Kumar's JD(U) to form a government for the first time since he came to power a decade ago.

Finance Minister Nirmala Sitharaman unveiled $576 billion in spending plans for FY25, slightly exceeding interim budget estimates. Policy measures seem to be aimed at boosting manufacturing and job creation in the world's fastest-growing major economy.

The government will spend Rs 2.66 lakh crore ($32 billion) on rural development, FM Sitharaman announced, unveiling new programs in the annual budget for states led by two key allies supporting Modi's coalition government.

The budget estimates Rs 48.21 lakh crore in spending, 1.2% higher than the interim budget's Rs 47.66 lakh crore, aided by a substantial transfer of dividends from the central bank. The fiscal deficit target was reduced to 4.9 per cent of GDP from the 5.1 per cent target announced in the interim Budget.

Additionally, Rs 2 lakh crore ($24 billion) will be allocated for job creation over the next five years, Sitharaman said.

"Policy continuity is reflected in the government’s capital spending on infrastructure which remains around 23% of total expenditure, although this remains below the 24% spending on interest payments. Overall, the budget is credit positive as it is expected to keep fiscal deficits at around 4.9% of GDP, lower than the 5.1% of GDP announced in the interim budget. This places the government's goal of achieving a 4.5% of GDP deficit by fiscal 2025-26 within reach," Fang told ET Online through e-mail.