New Delhi, Jun 18: Rating agency Moody’s has sounded a note of caution that any reduction in excise duty on petrol and diesel would adversely affect fiscal deficit unless it is matched by a commensurate cut in expenditure.
Pressure has been mounting on the government to cut excise duty on petrol and diesel to bring down their prices which have gone up following a spike in crude prices in the international market.
According to government estimates, every rupee cut in excise duty on petrol and diesel will result in a revenue loss of about Rs 13,000 crore.
Observing that fiscal consolidation would be closely watched for assigning the sovereign rating, Moody’s said India’s biggest challenge is its fiscal strength which is relatively low as compared to ‘Baa’ rated peers.
“Any reduction in revenues, including through the excise duty on petroleum and diesel, would most likely need to be offset by a comparable reduction in expenditure in order to achieve fiscal consolidation,” Moody’s Investors Service VP & Senior Credit Officer, Sovereign Risk Group, William Foster said.
Moody’s had last year upped India’s sovereign rating for the first time in over 13 years to ‘Baa2’ with a stable outlook, saying that growth prospects have improved with continued economic and institutional reforms.
“India’s biggest credit challenge is its fiscal strength … due to persistently large general government fiscal deficits and a high debt burden. For example, India’s general government debt-to-GDP ratio is nearly 70 per cent, relative to the ‘Baa’ peer group median of about 50 per cent.