Moody's has made it clear that it will not review India's sovereign rating even after the new government comes to power. "We are concerned whether the new government can give the much needed momentum to economic reforms. A new government will not bring in any change of rating and the stable outlook is expected to remain for a year to year-and-a-half," said David H. Levey, managing director and co-head of the sovereignrisk unit of the rating agency. Levey told The Financial Express in New York that India's rating of Ba2 will stay and the outlook will continue to remain stable.

"For an upgrade, India needs to discipline itself in the fiscal front, ensure export competitiveness and build a consensus among the public to support the reform programme," Levey said.

India's country ceilings for foreign currency notes and deposits were lowered to Ba2/Ba3 in June 1998 and a Ba2 rating was assigned to government rupee-denominated debt. The downgrades reflected deteriorating public finances and external trade balances which have become more difficult to correct in a divisive political environment.

According to Levey, the rating agency is concerned about the emerging political system. "Coalitions are not bad. They are working in the Scandinavian countries which have reined in their primary account deficit and turned it into surpluses. We are concerned about government policies as the momentum for economic reforms seem tohave got lost," Levey said.

Moody's primary concern is the government's ability to rein in the yawning public sector deficit with the primary deficit remaining negative. It has forecast a combined (centre, state and public sector undertakings) fiscal deficit of 10 per cent. It expects the central government's deficit to touch six per cent of GDP as compared to the government's projection of 4.5 per cent (under a changed definition for fiscal deficit) for the financial year 1999-2000.

"India has already entered into an internal debt trap and the authorities need to recognise this fast as this might snowball into a major crisis in the long term. The effects of an internal debt trap can spill over to the external front also," Levey said. He added that in a situation in which inflation rates are low the problems of an internal debt trap will be felt harder as interest rates are bound to go up.

"The government needs to curb expenditure. For that, India needs a strong finance minister who can cut down onexpenditure. So far, the government's ability to control expenditure has been doubtful. A strong finance minister can make a difference," Levey said. Present finance minster Yashwant Sinha had in the budget for 1999-2000 said that he was setting up an expenditure commission under expenditure secretary EAS Sarma to look into ways to curb government expenditure.

Levey suggested that the government's disinvestment target of Rs 10,000 crore may be difficult to meet. "I think the PSU disinvestment programme of Rs 10,000 crore is ambitious. The problem is with the implementation as there are a whole lot of labour, management and legal problems that are involved," Levey said.