Global rating agency Moody's is paying close attention to the Budget.

"We do not anticipate making any movements on India's rating in the near term. We need to assess the implementation of the Budget and also to analyse the impact on the government's financing capacity," Joan Feldbaum-Vidra, analyst, sovereign risk group of Moody's Investors Service told Business Standard.

"We are, however, concerned that weaker than expected revenue performance combined with what seems like an ambitious social agenda in the Budget could lead to an overshooting of the deficit target and a consequential rise in indebtedness," Feldbaum-Vidra said.

According to the Moody's official, the planned slowdown in the privatisation program will mean more recourse to expensive domestic debt creation.

The official said that downward pressure on the ratings would be exerted "if we think the government's debt ratios will deteriorate over the medium term".

In January 2004, Moody's upgraded India' s long-term foreign currency rating for bonds and notes to investment grade, at Baa3, reflecting primarily the improved external payments capacity of the country.

It did not, however, change the rating on the government's domestic currency debt, and kept it at Ba2 with a negative outlook. The domestic currency rating has been at this level since 2001.

"The two-notch gap between the foreign currency bond rating and the local currency rating reflects the poor condition of public finances," said Feldbaum-Vidra.

According to the agency, of particular importance is the government's ability to meet its deficit goals, and the question of whether the growth assumption and therefore revenues for the current fiscal year is appropriate or too ambitious.

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