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If Capex is done just to increase supply, then companies may end up overshooting the production which may pave the road for higher NPAs.

Officials of the finance ministry had pitched for an upgrade in the country’s sovereign rating outlook, while discussing about the economic growth prospects with the representatives of the ratings agency Moody’s on Tuesday. The meeting acted as a precursor to Moody’s annual sovereign rating action. Last year, the ratings agency had downgraded India sovereign rating to Baa3 from Baa2, owing to the imminent challenges involved in mitigating risks of a sustained period of low growth and deteriorating fiscal position.

Moody’s cut growth estimate for this year

In the meeting, the officials highlighted the upward movement of the growth in GDP in June 2021 and also the fiscal deficit and borrowing numbers.

During the April-July 2021 period, the centre’s fiscal deficit was at 21.3% of the full year budget estimate, primarily on account of rising tax, non tax revenue collections and curbs on expenditure. In the corresponding period last year, the fiscal deficit was at 103% of the annual target.

The government has also announced it would borrow Rs 5.03 lakh crore in the October to March period. For the current fiscal it had pegged the gross borrowing targets at Rs 12.5 lakh crore in 2021-22 budget.

While the Indian economy contracted by 7.3% in the 2020-21 fiscal, the economy grew by 20.1% in the April to June quarter of the current fiscal.

For this calendar year, Moody’s has slashed the growth estimate sharply to 9.6%. While the ratings agency has projected a 9.3% growth in the current fiscal ending March 2022.