"The rating assigned to the Maharashtra government reflects the advantage the state had of starting off with a big lead in its economy and government finance that has been maintained over the past three decades," said Icra in a release on Tuesday. The rating view takes note of the strong structural factors of the state and the relatively greater resilience of the state government to absorb external shocks arising from changes in general economic conditions.

Icra also believes that the continued consolidation of the state's leadership role in economic performance and fiscal management and ongoing progress in these areas are necessary to support the present rating.

Icra's assignment of an AArating to Maharashtra comes a fortnight after the Credit Rating Information Services of India Ltd (Crisil) decided to downgrade the state from AA- to A+ owing to its deteriorating finances. Credit Analysis & Research Ltd (CARE) has, however, decided to retain the AA- rating assigned to the Maharashtra government.

On January 4, Crisil downgraded the rating assigned to Maharashtra. The state, which until recently had the highest credit rating, was downgraded to A+ putting it on par with Gujarat and Andhra Pradesh, which were upgraded to the A+ grade only recently.

The downgrade of the rating by Crisil was based on the rising revenue and fiscal deficit on account of the Pay Commission liability of the state government as well as increasing debt servicing expenditure and the increasing reliance on market borrowings for financing of the plan outlay. The new focus on infrastructure financing -- especially in irrigation and drinking water schemes -- has increased dependence on debt servicing, a Crisil releasesaid.

The negative factors like the increased dependence on debt financing are partly offset by the relatively strong economic structure of the state, healthy growth in non-tax revenues and healthy additional resource mobilisation measures undertaken by Maharashtra, the Crisil release said.

Crisil has said that in the medium term, Maharashtra's finances would depend on its ability to control non-developmental expenditure, especially debt servicing, reduce the size of plan outlays financed out of borrowings and augment its revenue base in order to neutralise the impact of the pay commission recommendations.