TEXT-S&P afms rtg on India; Economic prospects remain strong

(The following statement was released by the rating agency)

Oct 31 - Standard & Poor's Ratings Services today 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.

The ratings on India reflect the country's strong economic
growth prospects and its deep government debt market, which helps
accommodate its weak fiscal position.

"India's economic prospects remain strong with growth likely
to average more than 7.0% in the medium term," said Standard &
Poor's credit analyst Takahira Ogawa. "Underpinning that growth
is the gradual deregulation of the industrial sector, continued
trade liberalization, a dynamic service sector, and modest
improvements in infrastructure."

Given the buoyant private and public investments with some
progress in economic reforms, India's business environment is
likely to improve in the years ahead, notwithstanding the current
dislocations in global credit markets. Its economic growth has
benefited from higher consumption and private investment, due to
a growing middle class and favorable demographics.

Monetary and financial reforms, coupled with strict fiscal
financing regulations, have led to more robust financial and
government securities markets. This has allowed the government to
increasingly move toward more market-oriented deficit financing
away from funding from the largely state-owned banking sector,
thus reinforcing fiscal discipline. On the other hand, heavy
funding programs of the public sector are still crowding out the
private sector's opportunity for funding.

"The ratings on India remain constrained by a weak fiscal
profile, especially the high government debt burden and deficit,
which are still among the largest for rated sovereigns," Mr.
Ogawa said. Commitment to fiscal consolidation across all levels
of government has been one of the supporting factors for the
sovereign credit rating in the past several years. However,
higher oil prices and populist measures for the coming general
election have weakened the government's efforts in fiscal
consolidation.

The stable rating outlook balances India's good external
liquidity and growth prospects with its weak fiscal flexibility.
An improvement in the sovereign ratings will depend on resumed
fiscal consolidation that leads to a materially lower debt and
interest burden, and additional reforms that lift the country's
growth prospects and income levels. On the other hand, further
fiscal slippage, a marked decline in external liquidity
indicators, or policy measures that weaken economic growth
prospects, could lead to downward pressure on the ratings.

The consolidated debt of India's central and state (general)
governments is projected at 82% of 2008 GDP, while interest
payments are likely to consume about 30% of general government
revenue. India's contingent liabilities are also high.
Government-guaranteed debt alone amounts to nearly 9% of 2007
GDP.

The sovereign ratings are also constrained by the low per
capita income of the country, which points to the challenges of
poverty alleviation. Infrastructure needs remain high in both the
huge agricultural sector and the industrial sector.
Primary Credit Analyst: Takahira Ogawa, Singapore (65) 6239-6342;

takahira_ogawa@standardandpoors.com
Secondary Credit Analyst: Elena Okorotchenko, Singapore (65)
6239-6375;

elena_okorotchenko@standardandpoors.com