Fitch Ratings has upped India's GDP growth forecast to 6 per cent from 5 per cent previously, but noted that the sustainability of the country's public finances is a major sovereign rating concern.
The stability of the present Government perhaps allows the country more meaningful progress on both economic reforms to enhance India's competitiveness and improvements in public finances, Fitch said in its latest report.
The agency said it was looking to the new Government's FY 10 budget and report of the 13th Finance Commission, to be released in October, to get more insight into the country's immediate and longer-term fiscal objectives.
According to the report, the global economy has likely stopped shrinking and will slowly begin to recover during the second-half of the year.
However, economic recovery will be anaemic and unemployment will continue to rise through most of next year.
Consequently, world's major central banks are not expected to begin raising policy interest rates until late 2010, it said.
Without cut in public spending in tandem with tax increases, Fitch predicts that in the US and UK, Government debt would reach 100 per cent of GDP by 2012 and 2013 respectively. Government debt ratios in France and Germany will exceed 90 per cent of GDP by the middle of the next decade, it said.