Moody's (Whose Management Team Includes Raymond McDaniel, Linda Huber, and More) - India's Food Inflation Credit Negative
MOODYS: INDIAS FOODINFLATION CREDITNEGATIVEWSJ ARTICLE – MARCH 18, 2013
MUMBAI--The current pace of food inflation in India is much faster than the globalaverage and is negative for the countrys credit rating as it hurts the governmentsfinances, Moodys Investors Service MCO -1.06% said Monday.Moodys has a Baa3, or the lowest investment-grade, rating on India with a"stable" outlook. The other two main global ratings firms, Fitch Ratings andStandard & Poors, also have similar ratings but with a "negative" outlook."Food inflation hurts consumption, government finances, the balance of paymentsand monetary policy flexibility," Atsi Sheth, a senior analyst at Moodys, wrote in anote.Indias government subsidizes food for a large portion of its 1.2 billionpeople, which eats into its finances and inflates budget deficit. Indias budget gapstands at 5.2% of gross domestic product this fiscal year ending on March31, slightly lower than the 5.3% projected earlier by the finance ministry.While price pressures have eased for most commodities, food inflation is stillaccelerating at a worrying pace due to inefficient storage and distribution facilitiesfor farm produce, which lead to regular supply shortages.Data last week showed food inflation remained above 11% for the second straightmonth in February as prices of protein-rich foods such as eggs, fish and meat aswell as those of vegetables including onions and potatoes rose sharply.
According to Moodys, the average increase in the World Banks commodity foodprice index for emerging countries was 3% year-over-year in the past 12months, when Indias index of wholesale food prices rose 10%.Food accounts for more than half of average household spending inIndia, Moodys said.Rural households spend 57% and urban homes 44% on food. Among thecountrys poorest rural households, that ratio rises to 65%, it said.Higher food prices lower households capacity to spend on non-foodproducts, thus worsening Indias ongoing economic slowdown as privateconsumption accounts for 57% of GDP.Elevated inflation also affects export competitiveness and limits the extent to whichthe central bank can cut interest rates to help stimulate the economy, Moodyssaid.—Anant Vijay Kala in New Delhi contributed to this article.