Raising hopes of a sovereign credit upgrade, global rating agency Moody's on Monday applauded finance minister P Chidambaram's Budget saying that it pursues realistic fiscal consolidation path and is 'credit positive'.
"India's budget pursues realistic fiscal consolidation, a credit positive for the sovereign", said Moody's in its credit outlook for the country.
Chidambaram in his Budget for 2013-14 proposed to bring down the fiscal deficit to 4.8 per cent of the Gross Domestic Product (GDP) from 5.2 per cent in the revised estimates for the current financial year.
"This plan of modest fiscal consolidation is credit positive for the sovereign because, against a backdrop of subdued GDP growth and upcoming elections, it is a realistic effort to correct India's macroeconomic imbalances", the rating agency said.
Earlier, ratings agencies like Standard and Poor's and Fitch had threated to downgrade India's sovereign credit rating to junk grade in view of the worsening fiscal position of the government. They also are likely to come out with fresh assessment in the backdrop of the Budget proposals.
Moody's had assigned BAA3 rating to India, which indicates investment grade rating with stable outlook.
The report further said that fiscal consolidation proposed by Chidambaram could could pave the way for monetary easing, which would revive growth.
The extent of easing, however, would depend upon the assessment of the RBI on the commitment of the government to contain fiscal deficit in the Budget.
The RBI had been insisting on a sustained commitment to fiscal consolidation to help it ease monetary policy.