Food inflation negative for India credit ratings: Moody's

MUMBAI Mon Mar 18, 2013 12:33pm IST

1 of 2. A worker at a fuel station checks a 500 Indian rupee note after filing a vehicle with fuel in Kolkata February 3, 2011.

Credit: Reuters/Rupak De Chowdhuri/Files

MUMBAI (Reuters) - India's high food inflation is a negative for the country's sovereign ratings as it filters through the broader economy, with adverse consequences for growth and the large fiscal and current account deficits, Moody's said on Monday.

Moody's Investors Service is the only one of the three major credit agencies to rate India with a "stable" outlook. Fitch Ratings and Standard and Poor's Ratings Services downgraded their outlook on India to "negative" from "stable" last year.

Higher food prices can accelerate broader inflation by pushing up wages, while negatively impacting the government finances and reducing monetary policy flexibility, Moody's said in a report.

The report comes after S&P last week said the slowdown in domestic economic growth is less supportive for India's sovereign ratings.

"Sustained food inflation is credit negative because it exacerbates India's macroeconomic challenges of slowing growth, high inflation and large fiscal and current account deficits," Moody's said.

India last week said consumer price inflation rose 10.9 percent in February, accelerating slightly from January, while wholesale price inflation rose 6.84 percent from a year earlier.

Although food inflation slowed down to 11.38 percent last month from 11.88 percent in January, it stayed in double-digits for the third straight month, tempering expectations of any aggressive monetary easing.

Moody's estimates food accounts for more than 50 percent of the average household spending in India, a worry for an economy that relies largely on private consumption.

Sustained food inflation over several quarters also has the potential to push up wages, reducing the extent through which the central bank can lower interest rates, while reducing the competitiveness of exports and import-competing sectors.

Food inflation also worsens the country's budget deficit given the government subsidises prices for a large portion of the population, Moody's added.

Increasing food supply could be a solution, but India is constrained by poor rural infrastructure, inefficient food distribution and storage systems and by agricultural productivity, Moody's also warned.

(Reporting by Rafael Nam; Editing by Sanjeev Miglani)

FILED UNDER:
  • Most Popular
  • Most Shared

DEFENCE

REUTERS SHOWCASE

Power Theft

Power Theft

India to invest $4 billion to tackle power theft  Full Article 

Debt Funds

Debt Funds

India monitors foreign flows into debt funds, may tighten rules  Full Article 

Bulgari Back in India

Bulgari Back in India

CEO: we shouldn’t have left India so we’re back  Full Article 

 Hindu "Modi-fication"

Hindu "Modi-fication"

Fears grow about Hindu "Modi-fication" of education  Full Article 

Weak Credit

Weak Credit

Hard to hit tax revenue target, credit weak - Jaitley  Full Article 

China Rate Cut

China Rate Cut

China surprises with interest rate cut to spur growth  Full Article 

Gold Imports

Gold Imports

RBI cautious on response to gold import surge  Full Article 

Economic Corridor

Economic Corridor

China commits $45.6 billion for economic corridor with Pakistan  Full Article 

Overseas Funds

Overseas Funds

RBI says overseas borrowed funds can be parked with banks in India  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage