India's medium-term growth prospects remain intact

India's medium-term growth prospects remain intact - S&P

	Published : Wed, 17 Oct 2007 12:58 By : Agencies Print this Story

MUMBAI (Thomson Financial) - Standard & Poor's Ratings Services said India's medium-term growth prospects remain intact despite the stand-off between the ruling Congress party and its communist allies over a proposed nuclear deal with the US.

The rating agency said the face-off could culminate into a snap poll in early 2008, but added changes in government during the past decade have not stopped the Indian economy from continuing on its strong growth trajectory.

However, it sees this political uncertainty and any possible delay to critical reform measures damaging investor confidence and reducing the country's growth potential in the short-run.

S&P notes the improvement in the country's fiscal performance, but said the gains made over the past few years could be unravelled by the Sixth Pay Commission, which will submit its report in April 2008.

The central government's budget deficit for fiscal year ending March 2007 came in at 3.5 pct of GDP, below the official target of 3.8 pct of GDP.

This keeps the sovereign's medium-term fiscal deficit targets of 3.3 pct of GDP for fiscal year 2007-2008 and 3.0 pct of GDP for fiscal year 2008-2009 intact, S&P said.

The agency said though inflation has fallen to a five-year low, it still remains a risk as the Reserve Bank of India continues to grapple with a high level of excess liquidity in the system, record high international oil prices, and rising local commodity prices.

It cautioned all these factors have the potential to threaten the central bank's inflation target of 5 pct this fiscal year.

On the country's industrial production, S&P said despite a slowdown, growth is still expected to come in at a relatively high 8.5-9.0 pct this fiscal year versus 9.4 pct last year. India's industrial production had grown at the slowest pace in nine months this July.

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India's medium-term growth prospects remain intact - S&P