On Tuesday, Moody’s Investors Service stated that the future sovereign credit profile of India is exposed largely to the negative effects of drought. However, it is said that the government has taken some steps that might have a mitigating control. This is possible if it sustained for another two to three years.
In a report, Moody’s stated that India might avoid drought this time, but its economy is vulnerable to drought as well as fluctuations in rainfall in the future. Also, its sovereign credit profile is exposed to the negative effects caused by drought than the ‘Baa’ rated sovereigns.
Currently, India is rated at ‘Baa3’ that is the lowest investment grade located just above the junk status. Moody’s Report is named ‘Vulnerability to Drought Poses Credit Challenges’. It is stated that the efforts taken by the state and central governments will only enhance the employment opportunities in rural infrastructure, non-agricultural segment and food distribution. This way, the might be a positive credit that is likely to reduce the credit challenge faced by the vulnerability of India to the drought poses.
The report went on stating that if the government’s efforts are successful and sustained in the next two to three years, there are chances to lower the vulnerability to drought. This will in turn benefit the country’s sovereign credit profile. This is possible as they will result in higher incomes, lower and stable inflation and lower fiscal burden.
The report goes on comparing India with the other countries that involve greatly in agriculture. In these regions, agriculture occupies the majority of GDP and it concludes that a relatively increased share of agriculture will be spent in the week rural infrastructure.
Moody’s Report added that apart from insufficient food distribution, a massive potion of the households in the country spend on food as well as share their food subsidy costs in the fiscal deficit of the government.
The report goes on stating that the vulnerability to drought faced by India might decline as the income of any common person will increase.