“Budget 2008-09 tenuously balances short-term political imperatives with long-term developmental needs, while also trying to be consistent with key fiscal targets set forth in the Fiscal Responsibility and Budget Management Act,” it said.

With the loan waiver of Rs 60,000 crore for farmers in the budget, the finance minister has focused on poor, less-educated rural dwellers. This should boost agricultural incomes in a relatively inexpensive fashion, and at a politically expedient time, Moody’s said.

The budget — being the fifth and final of the Congress-led United Progressive Alliance (UPA) government — was expected to lower the fiscal and revenue deficit of the country as proposed under the Fiscal Responsibility and Budget Management Act (FRBMA) legislation.

“The budget is also particularly interesting as it marks not only the last for the UPA government, which is serving its final year, but also because it comes in the terminal year of the FRBMA,” Moody’s vice-president Aninda Mitra said.

FRBMA provides a legal and institutional framework to bring down the fiscal deficit and contain the growth of public debt. Remarking that the government does not make a more explicit provision for the Sixth-Pay Commission, Mitra said the budget did not address the expected hikes of public sector salaries.

“The budget does not establish a mechanism or time-frame for transferring above the line (reducing or eliminating) sizable off-budget liabilities (especially, oil and fertiliser subsidies),” Mitra said.

He highlighted that by not addressing these issues the risk on economy would rise further. “The true extent of fiscal risk is higher than nominally apparent,” he added.

Although the FM, on Sunday, said buoyancy in revenue collections could meet the additional burden to pay the salary hike of Central government employees after the Sixth Pay Commission submits its report by April 4, Moody’s said the continued revenue buoyancy could underpin a level of fiscal performance consistent with incremental improvements in debt ratios.

“The projected growth in the central government’s budget expenditure looks extremely conservative, and this could very well be designed to make headroom for meeting additional expenses related to the Sixth Pay Commission’s public sector wage recommendations,” Mitra added.