A question mark loomed over India's fundamentals after global credit rating major Moody's downgraded State Bank of India (SBI), the country's largest lender and often seen as a proxy for the government, this week. Two of the world's top ratings agencies - Standard and Poor's (S&P) and Fitch Ratings - are preparing to review India's sovereign rating next month.
In a slowing economy with concerns linked to less savings and weaker tax revenues, government borrowing this year is set to touch a record Rs 4,70,000 crore - at least 12.5% higher than budget estimates. What this implies is that the government would pull funds away from companies.
Higher borrowing could also widen the fiscal deficit from the budgeted 4.6% of GDP.
"It (SBI downgrade) will have some impact and I am concerned" finance minister Pranab Mukherjee said on Tuesday.
State-owned banks like SBI need more capital from the government - their biggest shareholder. Spending on this would mean the Centre would have less elbow room to spend for growth.
{{/usCountry}}State-owned banks like SBI need more capital from the government - their biggest shareholder. Spending on this would mean the Centre would have less elbow room to spend for growth.
{{/usCountry}}"High interest rates and downside risks in the developed countries will impede India's growth momentum in 2011," Dharmakirti Joshi, chief economist at S&P's Indian unit Crisil, said in a report last month, observing that inflation and deficit were key worries.