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Mumbai, Dec. 6

GLOBAL rating agency Standard & Poor's has maintained India's sovereign rating below investment grade over fears of mounting fiscal deficit.

S&P has affirmed its `BB+' long-term and `B' short-term sovereign ratings on India. The outlook on the long-term rating remains stable. India's ratings balance its strong external position and growth prospects with its weak fiscal profile and pressing development needs, the agency said in a statement on Tuesday.

"India's average annual economic growth over the past five years of 6.5 per cent is higher than any other major economy except China's," said Standard & Poor's credit analyst Mr Ping Chew. "Growth has been fuelled by steady economic reform since 1991. We expect India to maintain or even exceed this pace of growth over the medium term, which in turn will allow India to alleviate some of its pressing poverty and infrastructure needs."

Incidentally, Moody's another international rating agency had upgraded India's sovereign rating about a year back.

Apart from Vietnam, India has the lowest per capita GDP ($710 in 2005) of any sovereign rated in the `BB' category or above and its percentage of population living on $1 per day is comparable to only a handful of sovereigns in the `B' category.

"Despite this high growth, India still has a pressing fiscal problem and its debt trajectory is on a rising trend," Mr Chew continued. "Although the implementation of a value-added tax by many States and general tax revenue buoyancy have permitted some fiscal consolidation the past two years, we are still projecting the general government deficit to reach 8.7 per cent of GDP for 2005-06, including Government transfers to State-owned oil companies to compensate in part for their public fuel subsidies. Gross general government debt and guarantees to GDP have risen to 101 per cent in 2005 from 87 per cent in 2000."

(This article was published in the Business Line print edition dated December 7, 2005)
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