India will face challenges meeting its fiscal deficit target of 3.4 percent for 2019/20, a Moody's analyst said on Friday, after the government announced plans to step up rural income support in its last budget before a general election due by May.

Prime Minister Narendra Modi addressing over 2000 students in New Delhi on Janury 29, 2019.IANS

India set a fiscal deficit target of 3.4 percent of gross domestic product (GDP) for the year ending March 2020, higher than a previous estimate, and also said it would breach the current year's 3.3 percent deficit target.

"Taken together, it doesn't really bode well for their medium-term fiscal consolidation targets," said Gene Fang, associate managing director, sovereign risk group, Moody's Investors Service. "From that perspective we would say, on balance, it's credit negative."

However, he said the budget announcements did not change the rating agency's stance on India. Moody's rates India at "Baa2" with a "stable" outlook.

The government's new targets fall short of its earlier commitment to reduce the fiscal deficit to 3.1 percent by the end of March 2020, and to 3 percent by March 2021.

Prime Minister Narendra Modi's government poured extra money into support for farmers and a rural jobs programme, as he seeks re-election.

"The chances are that these measures are going to have some fiscal cost and that unless there are cuts elsewhere or offsetting revenue increases... I think that in the medium term it may be more challenging to meet their fiscal deficit targets for next year," Fang said.