Food bill credit negative for India, says Moody?s

The author has posted comments on this articleTNN | Aug 30, 2013, 06.27AM ISTNEW DELHI: The food security bill approved by Lok Sabha will heighten India's macroeconomic problems and hurt government finances, global rating agency Moody's Investors Service cautioned on Thursday.

It said the Food Security Bill is credit negative for the Indian government. The agency has a Baa3 rating on India with a stable outlook. This is a notch above the junk grade status.

The Lok Sabha on Monday approved the food security bill, which seeks to provide subsidized foodgrains to 75% of the rural population and 50% of the country's urban population. While the objective behind the bill has been lauded, it has faced strong criticism for the possible impact on government finances, the farm sector and the broader economy.

Experts have slammed the timing of the bill, which comes against the backdrop of a slowing economy and a volatile currency. "The measure is credit negative for the Indian government (Baa3 stable) because it will raise spending on food subsidies to about 1.2% of GDP per year from an estimated 0.8% currently, exacerbating the government's weak finances," Moody's said.

The agency said India's fiscal deficit is higher than those of its emerging market peers. "Because the bill will take effect only in the last few months of the fiscal that ends March 2014, it will not significantly affect the fiscal 2014 budget. However, it will raise future subsidy expenditure commitments, hindering the government's ability to consolidate its finances," Moody's said.

FM P Chidambaram has said that the government will meet its fiscal deficit target of 4.8% of GDP for the current fiscal and has vowed that the government will not breach "the red line." Moody's also said in addition to the fiscal effect, the government subsidies will contribute to India's already high food inflation. "As we have noted previously, India's fiscal deficits contribute to the current account deficit by keeping domestic demand high, thus increasing imports."

Source: http://timesofindia.feedsportal.com/c/33039/f/533919/s/30917e7c/sc/24/l/0Ltimesofindia0Bindiatimes0N0Cbusiness0Cindia0Ebusiness0CFood0Ebill0Ecredit0Enegative0Efor0EIndia0Esays0EMoodys0Carticleshow0C221542540Bcms/story01.htm

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