The finance minister of the United Progressive Alliance government, delivered his 2004-2005 (ending March 31, 2005) budget, targeting a deficit of 4.4 per cent of gross domestic product (GDP), after 4.6 per cent in 2003-2004. This is based on 7 per cent GDP growth and 18 per cent operating revenue growth, and the expectation of limiting total expenditure growth to 8 per cent (excluding one-off debt swap in 2003-2004).

For the medium term, the government aims to adhere to fiscal rules under the Fiscal Responsibility and Budget Management Act 2003 of reducing the budget deficit gradually.

According to S&P, the budget marks the new government's attempt at balancing demands from its coalition and presenting itself as fiscally responsible. The government faces spending pressure partly due to its emphasis on public investment, infrastructure, and the rural and social sectors.

Achieving the target, however, will depend on revenue growth, which looks promising thanks to strong industrial growth contributing to tax intake, several tax measures and tighter tax administration, states the global rating agency.
Operating expenditure is projected to grow 6 per cent, and capital expenditure 18 per cent (excluding debt swap in 2003-2004).

According to S&P, its sovereign ratings on India are constrained by the high public debt burden and fiscal inflexibility. The negative outlook on the local currency rating reflects the tentativeness in stemming the fiscal deterioration. General government deficit is still estimated at 10 per cent of GDP in 2003-2004.

A concerted effort between the different levels of government to control the fiscal deficit and stabilise the growth of the government's debt burden could result in a stable outlook for the local currency rating. A better fiscal performance, along with structural reform to maintain the country's growth prospects and its strong external profile could lead to an improved foreign currency rating, S&P states.