Bloomberg News

Moody’s Says India Revenue Boost, Subsidy Cuts Could Lift Rating

September 17, 2012

Atsi Sheth, a sovereign risk analyst at Moody’s Investors Service, said India’s government should focus on improved tax collection to reduce its deficit and improve the nation’s debt rating. Moody’s rates India’s sovereign debt Baa3, its lowest investment grade. Sheth also commented on the challenges facing the government as it tries to reduce subsidies in a Bloomberg Television interview today.

On the deficit and tax collection:

“Regarding the fiscal deficit, yes, you know, it’s high not only because expenditures are high but also because revenues are low. When we look at India and compare it to other countries rated Baa3 as it is, we see the expenditure to GDP ratio is actually fairly similar to that of other countries in the same rating scale.”

“It’s the revenues that are actually much lower than most other countries rated Baa3. So any means to expand the revenue net, to make sure that collection is effective and that you know, they’re actually collecting the taxes they’re supposed to, all of those will be credit positive.”

On spending and subsidies:

“There isn’t much discretionary expenditure. Twenty-five percent of revenue goes to paying interest, you certainly can’t cut that on your own unilaterally. What the people expect the government to cut is the expenditure on subsidies.”

“But given the political realities in India, where you know, a huge chunk of the population is poor, cutting down food subsidies is a political and social risk so we’re not sure that’s going to happen in the near future.”

“Fertilizer and fuel subsidies are another area of expenditure and that perhaps will take some bold political move. That’s something you can see in the future and that certainly is credit positive.”

To contact the reporters on this story: Karl Lester M. Yap in Manila at;

To contact the editor responsible for this story: Stephanie Phang in Singapore at

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