Concern at deficit target

COMMENT/ Joan Feldbaum-Vidra, analyst, Sovereign Risk Group, Moody's Investors Service

We do not anticipate making any movements on India's rating in the near term. We need to assess the implementation of the Budget and also to analyse the impact on the Government's financing capacity.

We are, however, concerned that weaker-than-expected revenue performance combined with what seems like an ambitious social agenda in the Budget could lead to an overshooting of the deficit target and a consequential rise in indebtedness.

The planned slowdown in the privatisation programme will mean more recourse to expensive domestic debt creation. Downward pressure on the ratings would be exerted if we think the government's debt ratios will deteriorate over the medium term.

Of particular importance is the government's ability to meet its deficit goals, and the question of whether the growth assumption and therefore revenues for the current fiscal year is appropriate or too ambitious.

Last year's robust growth performance was owed to a low base year and also the recovery of agriculture due to the excellent monsoon. It is unlikely to be duplicated again this year.