Global rating agency Moody’s in its ‘Credit Outlook Report’ underscored that India’s farming reforms were key behind cutting country’s ballooning fiscal deficit. The rating agency highlighted that improvement in India’s sovereign rating will depend upon the government’s ability to pursue farm sector reform since this would have substantial bearing on inflation and fiscal deficit.
The rating agency expects that farm sector reform would improve the efficiency of India's food supply chain, which would definitely be credit positive since this will reduce inflationary pressures and the government's fiscal deficit, two key constraints on the sovereign's credit quality. Moody's has assigned a ‘Baa3’ rating with stable outlook on India.
According to Moody's, annual spending on food subsidies grew by 20% on average over the past eight years, compared with 16% overall expenditure growth during the same period. The central government spent about 0.88% of GDP on food subsidies in fiscal year 2014, which accounted for 18% of its fiscal deficit.
Notably, Moody’s pointed that food subsidy reform is expected to remain part of government’s fiscal consolidation strategy and that the government is likely to administer changes in food policy and process, which do-not require legislative amendments.