India's deficit is a "concern" and will be a key consideration in any upgrade of the country's sovereign credit rating, Standard & Poor's said.

　　"We are most concerned about the size of the fiscal deficit, both at the central and state government levels," Paul Coughlin, managing director for S&P's Asia-Pacific corporate and government ratings, told reporters in New Delhi after meeting finance ministry officials.

　　India needs to trim its deficit to free up more funds for investment to sustain growth in Asia's third-biggest economy after Japan and China. The government has said it's seeking to cut the deficit to 4.4 percent of gross domestic product, or 1.36 trillion rupees (US$31.2 billion), in the fiscal year ending on March 31, 2005, helped by the fastest economic growth in 15 years.

　　The country's long-term foreign currency rating outlook was raised to "stable" from "negative" by S&P in December, which is two levels below investment grade.

　　"The government is taking steps to increase tax revenue and the fiscal situation is improving," said A. Balasubramaniam, who manages the equivalent of US$1.2 billion of Indian debt at Birla Sunlife Asset Management Co in Mumbai. "The rating upgrade should happen soon."

　　The country's economic growth rate and rising foreign exchange reserves are a "positive story," Coughlin said. Loss-making state electricity companies were among the factors dragging down the economy, Coughlin said.

　　The country's foreign exchange reserves have risen by US$34.9 billion in the last year to a record US$110.3 billion, the central bank said in a statement on Friday.

　　India's economy grew 10.4 percent in the quarter ended on December 31, the most in at least seven years, as record farm production and the lowest borrowing costs in three decades spurred purchases of cars and homes. Asia's third-largest economy may have expanded 8.1 percent in the year to March 31, the most in 15 years, the government forecast in February.

　　India's long-term foreign-currency rating was raised one level by Moody's Investors Service to investment grade for the first time in almost six years on January 22. Moody's raised the rating to Baa3 from Ba1 with a stable outlook because of increasing foreign-exchange reserves, accelerating economic growth and higher overseas investment.

　　(Bloomberg News)