1. Farm sector reforms key to reducing fiscal deficit: Moody’s

Farm sector reforms key to reducing fiscal deficit: Moody’s

Improvement in India's sovereign rating will depend on the government's ability to pursue farm sector reforms as they have a bearing on inflation and fiscal deficit...

By: | New Delhi | Published: January 29, 2015 11:43 PM
farm sector, farm sector in India, farm sector reforms, farm sector crisis, inflation, fiscal deficit, Moody's, Arun Jaitley, Arun Jaitley news

Improvement in India’s sovereign rating will depend on the government’s ability to pursue farm sector reforms as they have a bearing on inflation and fiscal deficit, Moody’s said today. (Reuters)

Improvement in India’s sovereign rating will depend on the government’s ability to pursue farm sector reforms as they have a bearing on inflation and fiscal deficit, Moody’s said today.

“We expect (farm sector reforms) … will improve the efficiency of India’s food supply chain, a credit positive because it will reduce inflationary pressures and the government’s fiscal deficit, two key constraints on the sovereign’s credit quality,” Moody’s Credit Outlook said.

Moody’s assigns a ‘Baa3’ rating on India, with a stable outlook.

The Expenditure Management Commission, headed by Bimal Jalan, has recently submitted its interim report to Finance Minister Arun Jaitley.

The Minister is likely to incorporate the suggestions in the Budget to be tabled in the Lok Sabha on February 28.

The reforms which seek to reduce the fiscal deficit to 3.6 per cent in 2015-16 would include decentralising grain procurement, a process for disposing of excess food grains, delivering food and fertiliser subsidies via direct cash transfers, Moody’s said.

The exact reduction in subsidy costs will depend on the measures that the government eventually adopts, it said, adding that would help narrow the fiscal deficit.

According to Moody’s, annual spending on food subsidies grew by 20 per cent on average over the past eight years, compared with 16 per cent overall expenditure growth during the same period. The central government spent about 0.88 per cent of GDP on food subsidies in fiscal 2014, which accounted for 18 per cent of its fiscal deficit.

The central government recognises that the level and volatility of food prices poses risks to its fiscal target of reducing the fiscal deficit.

“… food subsidy reform is likely to remain part of its fiscal consolidation strategy. And the government, as it has done with other policy reforms in recent months, is likely to administer changes in food policy and process that do not require legislative amendments,” Moody’s said.

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