Source: Financial Times
August 29, 2006
International rating agencies have advised India's Government to remain firm to its commitment of reducing the fiscal deficit. In the 2005-06 fiscal year, India’s combined state and government deficit stood at 7.5% of GDP. While this is an improvement of almost 3 percentage points since 2001-02, critics assert the reduction is because of increased government revenue instead of reduced governmental spending. Last month the World Bank described India's fiscal position as "serious."
India's Prime Minister, Manmohan Singh, is likely to face considerable opposition from India's numerous leftist parties in his endeavors to reduce the deficit. While, rating agencies such as Standard and Poor's and Moody's recently increased India's investment rating, many fear that the government's inability to reduce its lavish spending could result in a downgrade. At a time when India is trying its best to woo foreign investment, a downgrade could prove to be costly.
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