"Despite previous price liberalization in the petroleum sector, the subsidy bill is likely to rise due to depreciation, thus widening the government's deficit, which is also under pressure from slower revenue growth", said Moody's Investors Service in an e-mail reply.
The depreciation of the rupee, it said, reflects the wider CAD as well as lower net capital inflows.
Continuing its slide, the rupee on Tuesday breached 64-mark against dollar by falling 98 paisa to trade at record low of 64.11 on persistent dollar demand in the early trade.
"We believe the currency will remain under pressure until the current account deficit narrows meaningfully, or capital inflows accelerate due to an improving growth outlook," Moody's said.
Meanwhile, a report by the rating agency said that the rupee fall will weaken the credit quality of state-owned oil marketing and upstream oil companies during the current fiscal if the government continues to ask them to share a higher fuel subsidy burden as it did in April-June.
"We now expect fuel subsidies for FY 2014 at Rs 1.4-1.5 lakh crore, up from the Rs 1.3 lakh crore expected in June 2013," said Vikas Halan, Moody's Vice President and Senior Analyst.
The report cites the ongoing depreciation of the Indian rupee and the rising crude oil prices as the reasons for the upward revision of its fuel subsidy estimate for 2013-14.
"If the government continues with the same subsidy-sharing formula, as in April-June quarter, then the credit quality of the state-owned oil companies will weaken further," Halan added.


Latest News  from Business News Desk