S&P warns lower growth for India

By agencies   |   Wednesday, 23 February 2005, 08:00 Hrs
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NEW DELHI: Ahead of the Budget, Standard and Poor's has warned India may not achieve the FRBM target of axing fiscal deficit and projected a lower growth of six per cent this fiscal.

In its Asia-Pacific Sovereign Report Card, S&P said the Budget for 2005-06, to be unveiled February 28, is "likely to re-emphasis its resolve for fiscal consolidation, but spending plans would require better revenue generation capability."

The report also said the overall fiscal deficit was better due to debt-swap with states, it said: "the Central government is unlikely to meet its own fiscal rules of cutting the budget deficit by 0.3 per cent to 4.4 per cent of GDP this fiscal."

About growth, it said India's economic numbers showed a mixed picture, but the underlying strength in the economy remains. "GDP for fiscal ending March 31, 2005 is expected to be about six per cent," it said, adding the country had potential to grow by seven per cent due to the gradual reforms undertaken.

Against strong contributions from industry and services and the weak farm sector in 2004-05, it said: "some moderation is expected from industry and services, while a reversal in agricultural output is expected going into the next fiscal."

Noting that the mid-year review of economy in December had highlighted the need to increase taxes and attract FDI, it said the dynamics of the coalition Government would dilute some of these initiatives.

Noting that revenue deficit was higher than the target levels, S&P said: "small improvements in the central Government revenue are likely to be overweighed by expenditure plans and deterioration in states' finances."

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