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Outlook on India 'BB' FC Rating Revised to Positive From Stable
The consolidated debt of the central and state governments is expected to
hover around 80% of GDP in the current fiscal year. The combined central
and state government deficits amount to 9%-10% of GDP, while interest
payments are likely to consume one-third of general government revenue in
the current fiscal year. Furthermore, India's contingent liabilities are
high. Government-guaranteed debt amounts to 10%-11% of 2004 GDP, and the
government has a propensity to support financial institutions and
loss-making state-owned enterprises, including the decrepit electricity
sector.
Although the central government has stepped up efforts to rein in its
budget deficit, the pace of budgetary consolidation is likely to be slow.
The government aims to adhere to the Fiscal Responsibility and Budget
Management Act 2003, which targets a gradual reduction of the budget
deficit. Nevertheless, the commitment is noteworthy coming from a
generally left-leaning government, reflecting a bipartisan support for
fiscal consolidation.
Going forward, the timely and effective implementation of tax reform,
along with steps to move toward a value-added tax, could result in more
buoyant government revenues. Cautious debt management, deepening domestic
capital markets, and rising private sector savings should continue to
cushion the macro-economic impact of large fiscal deficits.
"India's foreign currency rating could be upgraded, provided the domestic
debt burden moderates. On the other hand, if the fiscal deficit remains
large and the debt burden continues to rise, the local currency rating
could be lowered," added S&P.
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RATING RELATED FEATURES
Moody's Ratings of Indian Banks and Financial Institutions (February 2004)...Click Here
Detailed comments of Moody's upgrade of India's long term foreign currency rating (February 2004) ...Click Here
Detailed comments of Standard & Poor's Upgrade of India's Outlook (December 2003)...Click Here
Detailed comments of Standard & Poor's Ratings of major Indian financial institutions/commercial Banks (October 2003) ...Click Here