NEW DELHI: There is a general mood of disappointment when discussing pace of reforms under Prime Minister Narendra Modi : Report Ratings agency Moody 's has said India's rural economy has weakened considerably in recent quarters because of slower income growth and rural demand is likely to remain subdued in the current fiscal as a result, warning that the development is credit negative for India.In its quarterly 'Inside India' report, Moody's Investors Service noted a relatively optimistic consensus view on growth prospects but some disappointment with the pace of reforms. The report is a compilation of developments and research highlights of the past quarter.“A sustained soft patch for India's rural economy would weigh on private consumption and non-performing assets in the agricultural sector, a credit negative for the sovereign and banks," the United States-based agency said in 'Rural Demand to Remain Soft, a Credit Negative for Rated Issuers' contained in the report.In April, Moody's had raised the outlook on India's sovereign rating outlook to positive from stable,recognising the country's much improved macroeconomic fundamentals. Moody's has a Baa3 rating for India, the lowest investment grade.The report also includes highlights from the first annual Moody's and ICRA India Credit Conference in Mumbai in May . “We are forecasting headline economic expansion of 7.5% in the fiscal year ending March 2016 (FY2016), the highest projection amongst G20 economies, and this growth outperformance provides a key pillar of support for our sovereign rating of Baa3 with a positive outlook," it noted.India's farm sector expanded only 0.2% in 2014-15, data released by the government in May showed, depressing rural income growth.“Rural income growth has been stuck in the mid-to-low single digits in 2015 to date, well off the 20% plus rates clocked in 2011," the Moody's report said. “Given that rural consumer price inflation came in at 5.5% year-over-year in May , this means that rural wages are actually contracting in real terms."“Notwithstanding these growth expectations, there was a general mood of disappointment when discussing the pace of reform under the administration of Prime Minister Narendra Modi, and increasing concerns about the risk of policy stagnation," said the report, which is based on a survey of 141 market participants that attended the conference.The report said the government's fiscal restraint is partly the reason for the slower rural growth. In 201415, the government's spending was Rs 1.5 lakh crore less than that budget` ed because of the brakes applied by the government to stay within the budgeted fiscal deficit of 4.1% of GDP .The tight leash on increases in minimum support prices (MSP) to keep inflation in check has also contributed to slower rise in rural incomes. The government announced a 3.7% increase in the MSP for paddy for 201516, well below the 9.1% average annual increment seen between 2009-10 and 2013-14, the report said.The greater fiscal discipline by the new government in administering the National Rural Employment Guarantee Act has also had an impact on rural incomes, according to the report. Total expenditure under the scheme declined to Rs 36,030 crore in 2014-15 from Rs 38,800 crore in the previous fiscal. A below-par monsoon will further undermine rural demand, the report said.India's met department has forecast a below normal monsoon, with rainfall at 88% of the average. Monsoon started on a strong note, however, yielding a significant 18% higher than average rainfall as on June 29, before losing pace.