"India's fiscal position is very weak. Even if deficits targets are met, the fiscal position will be weaker. So, even meeting the target is not going to do much for the ratings and a slight miss is likely to do with context rather than policy action," Moody's Associate Managing Director for sovereign ratings Atsi Sheth told reporters.

The global rating agency has a 'Baa3' rating with a positive outlook on the country.

Explaining the rationale, Sheth pointed out that when there was a massive improvement in the overall fiscal deficit during 2002-03 to 2007-08, a period which saw the expenditure-revenue gap coming down massively from 10 percent to 4 percent, her agency did not change the ratings.

Stating that Moody's looks more closely at the context of the widening or narrowing of fiscal deficits, she said "if deficit targets are missed because growth was lower and not because of delivered policy actions that set up liabilities in future years, we do take that into the account".

Even amid falling nominal growth and a wide gap on the revenue front, with April-December tax mop-up reaching only 66 percent of the Budget target, the Finance Minister over the weekend reiterated his commitment to meet the budgeted 3.9 percent of fiscal deficit target in 2015-16.

However, Moody's India affiliate ICRA said the pay revision for the central government employees and pensioners will pose a challenge to fiscal and inflation management.

Sheth reiterated that India will remain one of the fastest-growing large economies in 2016, but inflation and corporate profit trends are likely to determine growth.

Latest News  from Business News Desk