India's Higher Growth To Increase Tax Revenues, Capital Inflow

By M. Saraswathi NEW DELHI, Sept 3 (Bernama) -- India's high grow rate is likely to increase tax revenues and capital inflows for the country as well as help reverse some of the weakening trends in its fiscal and external position in recent years, Moody’s Investor Service said. For the quarter ended June 2014, India registered a gross domestic product (GDP) growth of 5.7 per cent which is in line with Moody’s long-held view that growth deceleration to sub-5 per cent level over the last two years would reverse over time. “India’s macroeconomic outlook will also improve if, as we expect, the authorities implement policies that ease inflationary pressures and increase infrastructure investment,” it said in a statement here, Wednesday. However, Moody’s forecasts India’s fiscal, inflation and infrastructure metrics to remain weaker than the median for similarly rated peers. “While stronger growth in this large and diverse economy will help to counterbalance these credit challenges, they limit further upward momentum in the sovereign rating.” The deceleration in economic expansion since 2011 was largely due to cooling in manufacturing output, which recovered in the June quarter, reviving GDP growth, it said. “We expect manufacturing activity to accelerate over the next two years, supported by positive sentiment and a policy focus on investment. Lower agricultural output due to a weak monsoon and more modest government spending growth as authorities aim to meet budget targets will likely temper the pace of GDP acceleration in the coming months.” However, growth will still likely remain above five per cent this year, and rise further in fiscal 2016. Even without policy efforts, the cyclical turnaround in growth will increase the consumption and corporate tax take, and help meet the central government’s budget deficit target for the fiscal year ending March 2015 (fiscal 2015) of 4.1 per cent of the GDP. Moody’s further said a decline in the deficit based on revenue buoyancy alone would be credit neutral at best as the fiscal position would remain vulnerable to future cyclical downturns and external shocks. India’s credit rating at Moody’s is Baa3 stable. -- BERNAMA