Susidy bills may badly affect India's rating: S&P

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Soaring crude oil prices and ballooning food and fertiliser subsidy bill will cast a shadow on country's fiscal deficit and its credit profile, global rating agency Standards and Poor's said.

"A reversal of the fiscal consolidation process, especially with rising off-balance-sheet subsidy costs, in tandem with a deterioration in the country's balance of payments performance, could put pressure on India's credit standing," the report said.

Downgrading by a rating agency would adversely impact the investment prospect and retard the investment flow from foreign countries.

The report, however, said that the key to India's creditworthiness will be the continued effective and timely implementation of reforms, especially amid the vested interests of unions and political parties.

While the country's fiscal deficit position markedly improved to 2.5 per cent of GDP in 2007-08, it said increased subsidies relating to oil, food, and fertilisers were not accounted for and are estimated to have understated the deficit by about one per cent of GDP.

On the outlook, the study said, rising commodity prices will likely lead to subsidy increases and the 6th Pay panel has recommended salary increases for employees.