said in a statement.
The government has revised its estimate for the deficit in the current fiscal year ending March 31, 2013, at 5.2% of GDP, smaller than the 5.3% target earlier, but "there is little progress in structural reforms to reduce the vulnerability of the government's fiscal position", S&P said.
Out of the three main rating agencies, S&P and Fitch have India on negative watch, the lowest investment grade among the BRIC group of large emerging economies. A cut would take the country's credit rating to junk status.
"The ratings on India continue to reflect the country's favourable long-term growth prospects, moderately deep capital markets, and a high foreign exchange reserves. India's large fiscal deficits and debt, and its lower middle-income economy constrain the ratings," S&P said.
Going ahead, "further developments in India's economic growth prospects, its external position, fiscal reforms (including subsidies and GST), and political climate will determine the medium-term trajectory of the sovereign ratings on India."
Despite the weak economic environment and the "political temptation" to increase fiscal expenditures ahead of a general election, the government has presented a relatively prudent Budget, S&P said.
It, however, cautioned that that there is a potential for the government to exceed its budgeted expenditures.
"For example, India is still vulnerable to spikes in oil and other commodity prices. Although the government allowed a gradual increase in diesel prices earlier this year, the timing and the extent of such increases are uncertain. If the government enacts the food security bill, the fiscal burden from food subsidy can increase," S&P said.
Fiscal consolidation in the year starting April is mainly through steps to boost revenues, some of which are "temporary" the report said, adding that "the budget would be vulnerable to economic conditions in the next fiscal year".
Expenditure growth is likely to accelerate to 16.4%, from 9.7% in the current year. The level of direct transfers to the poor is still small compared with the total size of subsidies, it added.