Food Bill will push govt spending to 1.3% of GDP: Moody‘s

India, currently spends 0.8 percent of its gross domestic product (GDP) on food subsidies, Food Security Bill will push it higher to 1.2-1.3 percent of GDP, says Atsi Sheth, Moody's Investor Service.

“The bill has been passed late in the year and by the time implementation gets going, it is probably only going to add another 0.2 percent of GDP,” she told CNBC-TV18. Moody's currently has a Baa3 sovereign rating on India with a stable outlook. The global rating agency said in a statement on Thursday that India's plan to provide cheap grains to the poor is credit negative and will worsen the government's weak finances. She added that the partial impact of Food Bill on fiscal deficit will be seen in FY14. Further, growth falling below government’s anticipation and rise in fuel subsidies pose a risks to the FY14 fiscal deficit target of 4.8 percent.  UPA's legacy: Food Poison and Land Mines for next govt Below is the edited transcript of Atsi Sheth’s interview with CNBC-TV18 Q: Could you start by detailing what the impact of the food security bill would be on the fisc? A: Quite simply the food security bill is going to increase the amount of spending by increasing the amount of coverage in terms of the subsidies that are offered. Now 0.8 percent of gross domestic product (GDP) is spent on food subsidies, so the subsidy bill will go to maybe 1.2-1.3 percent of GDP. These estimates are contingent on what food prices are like in the years to come. If food prices rise as they have been doing that number could go up even further from 1.2-1.3 percent of GDP. So that will increase the expenditure to that extent and that is the fiscal deficit. Q: What about FY14, what is the partial impact of the food security bill on the fiscal deficit? A: Because the bill has been passed this late in the year and by the time implementation gets going, it is probably only going to add another 0.2 percent of GDP. So if you assume that that expenditure will be added without any other cuts, which may or may not happen then it would go from 4.8-5 percent, which is not such a big change. It is in the years to follow that you could have the fiscal deficit rise by about 0.5 percent of more of GDP in the coming years. That is our concern from the rating perspective that it is not this year’s deficit but it is the deficit in future years that may rise because of this new commitment that has been added to the government. Q: Just for this year itself, given the food security bill and the various other factors like the higher oil subsidies, the market scenario, which may lead to difficult divestment scenario, you think even FY14 fiscal deficit is at some risk? A: There are a number of risks to the fiscal deficit target. First, growth itself might come out below what the government had anticipated when the budget was passed and that means tax revenues will probably be lower. The second is fuel subsidies. If there is a spike in oil prices that too would add to the subsidy bill.