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June 4, 1998

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S&P expresses concern at India's fiscal deficit

The international credit rating agency, Standard and Poor, has expressed concern at India's fiscal deficit of 5.6 per cent of Gross Domestic Product, but believes that a process of fiscal stabilisation will occur over a period of time.

Speaking to newspersons today, S&P managers expressed satisfaction over the thrust of the Union Budget on infrastructure but felt sceptical about the fast implementation of projects cleared by the Union government to counter economic sanctions imposed on India after the nuclear tests.

"Promises are easy to make and say. Such promises have been made in the past. What remains to be seen is whether the new government implements them," said Suzanne Smith, director of S&P's infrastructure rating services.

Rick Shepherd, director of the agency's public finance rating services, said deficits accumulated by the state governments is around 10 per cent of the GDP, which is a greater cause for concern than the increasing fiscal deficit.

Asked whether S&P could have waited till the announcement of the Budget before changing its India outlook from stable to negative, Shepherd said that the agency's actions were purely guided by the sanctions imposed on the country after the nuclear tests. He refused to comment on S&P's outlook on the Indian rupee.

Credit Rating Information Services of India Ltd deputy general manager and head, infrastructure division, Sujatha Srikumar denied that CRISIL did not take into account the contingent liablities of the state government while rating the projects.

Earlier, addressing a seminar on 'Infrastructure Finance and Public Finance', S&P's director of rating development Surinder Kathpalia informed that Pakistan's sovereign credit rating has been downgraded two notches from B to B-.

He also said that the southeast Asian turmoil has had an impact on the region. Except for Indonesia, S&P's outlook for all other countries affected by the economic turmoil has stabilised, he said, adding that Indonesia has been downgraded to CCC after the outbreak of student riots.

At the seminar, Srikumar said the project completion risk for roads and railway projects was higher than telecom and cellular projects. "During the construction of the Konkan Railway, completion of one tunnel held up the whole project," she said.

She informed that Maharashtra enjoyed the highest rating of A, followed by Gujarat (A). "Orissa is on the lower end of the rating spectrum," she said.

Suzanne Smith said that S&P has rated over US $ 30 billion worth project finance debt issues, with $ 27.6 billion rated as on February 2, 1998.

Shepherd said that if the fiscal situation of India deteriorates, S&P may have to downgrade the country's rating, but lifting of trade sanction imposed in may would not neccessarily mean a change in the agency's outlook.

Budget '98

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