"The fiscal deficit does remain a matter of concern, which is why we have kept the local currency rating of the government at non-investment grade Ba2, despite the outlook stabilisation (earlier this year)," Moody's senior official Kristin Lindow told PTI.
Pointing out that the rating agency moved the outlook on the government's domestic currency rating from negative to stable earlier this year, Moody's vice president-senior credit officer sovereign risk unit said these are long-term ratings, not assessments that would change frequently, and often they would remain unchanged for years.
Lindow said Moody's raised the Indian government foreign currency issuer rating to investment grade in February 2005, which was tremendously forward-looking given the potential constraints posed by the weak public finance position and the political conundrum the country faces.
Lindow's remarks were in response to a query whether perception by some analysts is correct that rating agencies sometimes lag behind assessments of market participants.
Recently, Fitch Ratings upgraded India's rating to investment grade, which is interpreted by many as late action on the part of the agency since markets, both global and domestic, have already acknowledged Indian economy's strong fundamentals.
The Centre's fiscal deficit touched Rs 77,740 crore (Rs 777.40 billion) during the first quarter of this fiscal, constituting 52.30 per cent of the projected figure of Rs 1,48,686 crore (Rs 1486.86 billion) for the entire fiscal.
Finance Minister P Chidambaram had said upside in fiscal deficit is because expenditure is front loaded in the first quarter. He had also said the Government is working to meet the fiscal deficit target for 2006-07.
As per the Fiscal Responsibility and Budgetary Management targets, the government has projected to bring down fiscal deficit to 3.8 per cent of GDP this fiscal.
Upgrading India's rating to Investment Grade with stable outlook, Fitch Ratings recently said, "This upgrade reflects Fitch's view that fiscal consolidation is at last taking hold in India, reinforced by the impressive growth story and strong external balance sheet," Paul Rawkins, senior director, Fitch said.
Public finances are still weak, but they are no longer an insuperable constraint on this rating, Paul Rawkins said.
For the first time since it started rating India in March 2000, there appears to be near universal commitment among the Centre and the states towards fiscal consolidation, Fitch said.
This sea change in policy intent, coupled with a more discernable path of fiscal consolidation, has reduced the risk that India's weak public finances could impair its strong external financial position.
Although still high, revised data show the general government deficit declining to 7.5 per cent in 2005-06 from 10.1 per cent of GDP in fiscal year 2001-02.