Moody's Raises Concerns Over India's Fiscal Strategy Amid Tax Cuts

Moody's Ratings highlighted concerns over India's revenue growth due to recent tax cuts, affecting fiscal policy support potential. Despite tax relief efforts to boost consumption, Moody's projects a tempered economic growth trajectory, emphasizing the roles of domestic consumption and infrastructure spending in mitigating external tariff challenges.

On Tuesday, Moody's Ratings expressed concerns, noting that India's recent tax cuts have hindered revenue growth, compromising fiscal policy support for the economy. The Vice President - Senior Credit Officer, Martin Petch, highlighted these issues during a webinar, cautioning about limited fiscal consolidation capabilities.

Latest data from the Controller General of Accounts shows a drop in net tax revenue, with only 43.3% of the budget estimates achieved by September FY26. Government measures aimed at boosting consumption, including I-T rebates and GST rate cuts, seek to spur economic activity.

Despite fiscal challenges, Moody's forecasts India's economy to grow at 7% in 2025, echoed by domestic consumption and infrastructure spending. However, high US tariffs could pose investment risks, despite easing inflation and monetary policy intended to increase household purchasing power.