New Delhi: India's sovereign rating outlook indicates that the current assigned rating of BBB- with a stable outlook may remain stable for the next 12-24 months, said Art Woo, Fitch Ratings' director of Asia sovereign ratings.
   
"We are always monitoring the situation. We do have a stable outlook (on India). Our stable outlook basically indicates that we think the ratings remain stable in the next 12-24 months and it (fiscal deficit) was priced in," Woo told NewsWire18 in a telephonic interview from his Hong Kong office.
   
Economists and rating agencies will closely watch Union Budget for 2012-13, and any higher expenditures or subsidy could reflect deteriorating fiscal health and thereby impact the sovereign rating.
   
Woo said Fitch would closely gauge India's fiscal consolidation efforts.
   
"The question comes down whether they (Indian government) have the ability to stay on the course on that (13th Finance Commission recommendations)...so we'll see whether they stick to that or whether they alter it when they announce the next Union Budget."
   
In February 2010, the government had accepted the 13th Finance Commission's recommendation to progressively cut the fiscal deficit to 3.0% of GDP by 2013-14 (Apr Mar).
   
The panel had suggested the government should aim for a fiscal gap of 4.8% of GDP in 2011-12, 4.2% in 2012-13, and 3.0% in 2013-14.
   
"...What we are trying to get a gauge of is how their (government's) fiscal consolidation effort proceed and that's certainly part of it (impact on ratings)," he said.
   
India is currently reeling under a ballooning fiscal deficit situation because of high subsidies and lower-than-expected revenues. The country's 2011-12 (Apr-Mar) fiscal gap is seen sharply exceeding the budgeted 4.6%.
   
India's fiscal deficit in the first nine months of 2011-12 (Apr-Mar) touched 3.81 trln rupees, accounting for 92.3% of the budgeted aim.

According to Woo, the country's public debt to gross domestic product, which has a larger bearing on its sovereign ratings, seems "fairly ok" at present.
   
"Generally we've seen a trend where the public debt to GDP ratio has been trended down over the past few years. So I think that is probably the bigger issue rather per se whether the government necessarily meets their (fiscal deficit) target this year."
   
The 13th Finance Commission had suggested that total debt of centre and states as a percentage of GDP be slashed to 68% in 2014-15, compared with 81.9% in 2008-09.
   
Woo conceded that bringing the economy back on the fiscal consolidation path could be a tough task.
   
"If the starting point is weaker then it obviously becomes more difficult if they are looking to lower it. I think we have to see what set of measures they put in place both on their revenue and expenditure side to decide that," he said.
   
The fiscal gap for the next financial year will be set when Finance Minister Pranab Mukherjee announces the Budget for 2012-13 (Apr-Mar) on Mar 16.

Woo warned of risks that the slowdown in the Indian economy could be dragged till Jul-Sep amid the uncertain global environment.
   
"It is tough to say when the economy is going to bottom out...is it this quarter and is it the next quarter or is it may be even going to be extended to Jul-Sep period. There are most certainly risks there but will bode on potentially how the global economy performs."
   
In its advance estimate last week, the government estimated the Indian economy may grow 6.9% in the current financial year, a three-year low. The Indian economy had expanded 8.4% a year ago.
   
In the first half of 2011-12, the economy had expanded 7.3%, compared with 8.6% in the year-ago period.
   
The slowdown, however, could bring along with it some positive factors such as lowering prices, the economist pointed out.
   
"If the global economy continues to deteriorate, it might be helpful. Commodity prices remain elevated, oil prices continue to rise that has knock-on effects on generally inflation," Woo said adding that an easing inflationary scenario could give the Reserve Bank of India room to cut rates.
   
However, Woo said the second half of the next financial year could "throw up some optimism".
   
Woo expects gross domestic product growth to be at 7.5% in the next financial year.

(Agencies)