Bangkok--2 May--Standard & Poor's Standard & Poor's Ratings Services affirmed its 'BBB-' long-term and 'A-3' short-term sovereign credit ratings on the Republic of India. The outlook on the long-term rating remains stable. This reflects the country's strong economic prospects, external balance sheet, and its deep capital market, which supports a weak, but improving, fiscal position. India's economic prospects remain strong, underpinned by the dynamic service sector, gradual deregulation of the industrial sector, continued trade liberalization, and modest improvements in infrastructure. Economic growth is also benefiting from higher consumption and private investment demand, due to a growing middle class and favorable demographics. "Commitment to fiscal consolidation across all levels of government looks to be entrenched, aided by both strong revenue collection and expenditure controls," said Standard & Poor's credit analyst, Takahira Ogawa. The combined central and state government deficit is estimated at 5.5% of GDP in fiscal 2007 (India's fiscal year is April 1-March 31), down from 6.4% in fiscal 2006. Improvements have been led by a marked improvement at the state government level as they implement and adhere to fiscal responsibility laws (currently enacted by 26 out of 29 state governments as of end-2007). "However, these improvements are overstated somewhat, given that the increases in subsidies for oil, food, and fertilizers--estimated to be about 1% of GDP--are not accounted for in the central government deficit," Mr. Ogawa said. "The ratings on India remain constrained by a weak fiscal profile, especially its high government debt burden and deficit, which are still among the largest for rated sovereigns," Mr. Ogawa added. The consolidated debt of India's central and state (general) governments is projected at 78% of 2008 GDP, while interest payments are likely to consume about 30% of general government revenue. India's contingent liabilities are also high. General government-guaranteed debt is expected to amount to almost 7% of 2008 GDP. The stable outlook balances India's strong external liquidity and growth prospects with its weak fiscal flexibility. Further rating improvements will depend on sustained prudent fiscal policy that leads to further declines in the government debt and interest burdens, and additional reforms that lift the country's growth prospects and income levels. By contrast, policies that reverse fiscal consolidation, weaken economic growth prospects, and erode the government's strong external liquidity position could lead to downward pressures on the rating. Complete ratings information is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Credit Ratings Search. Media Contact: David Wargin, New York (212) 438-1579 [email protected] Analyst Contacts: Takahira Ogawa, Singapore (65) 6239-6342 Sani Hamid, Singapore (65) 6239-6346