Food inflation is a credit-negative: Moody's

Says India's current pace of food inflation is faster than the global average

Global rating agency Moody’s on Monday said India’s high food inflation is a credit-negative for the country as it hurts government finances and curtails the ability of the Reserve Bank of India to deal with monetary issues.

“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 Investors Service said in credit outlook report.   

While Fitch and Standard and Poor's have downgraded their outlook on India to "negative" from "stable", Moody's Investors Service has assigned a "stable" outlook.   

The Wholesale Price Index for February showed that food prices increased by 11.4 per cent year-on-year, raising overall inflation for the month to 6.8 per cent, despite a deceleration in core inflation to 3.8 per cent.

Moody's said India's current pace of food inflation is faster than the global average.  

“Moreover, although food inflation is not desirable anywhere, it has particularly credit negative implications for India because of its economic structure and policy framework," it added.  

Food inflation, it said, "hurts consumption, government finances, the balance of payments and monetary policy flexibility".  

“Because the Indian government subsidises food for a large portion of the population, increases in food prices inflate government expenditure...And the Budget deficit, which is already high relative to comparable emerging markets,” Moody's' said.

According to the credit ratings agency, food demand is unlikely to fall, and food supply is difficult to raise.