Moody’s Investors Service says that higher oil prices than in the last two years and rising interest rates are raising pressure on the Government of India’s (Baa2 stable) budget and current account, although mitigated by robust GDP growth and other factors.
“Higher oil prices and interest rates will put pressure on the government’s budget and the current account. However, growth prospects remain in line with the economy’s potential, around 7.5% this year and next,” says Joy Rankothge, a Moody’s Vice President and Senior Analyst.
“This robust growth, large foreign exchange reserves, a predominantly domestic funding base, strengthened monetary policy management, and macro-prudential regulations on bank lending in foreign currency will broadly contain the credit impact of the higher oil prices and rising interest rates,” says Rankothge.
Oil prices at current levels will raise expenditures and add to existing pressures on the fiscal position stemming from the lowering of goods and services tax (GST) rates on a range of consumer goods and a tax cut for small businesses as well as the relatively high minimum support prices set for this year. Read More
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