While foreign currency and local currency ratings have been reaffirmed at `BB' and `BBB', the agency said India's ratings are supported by ongoing regulatory and structural reforms in other sectors as prudent international liquidity management. The `BBB' rating indicates adequate protection, while `BB' reflects least degree of speculation.

Commenting on the political developments, S&P said: ``Frequent changes of Government are the inevitable consequences of the fragmentation of India's voting patterns in recent years. The fall of the Vajpayee administration last Saturday is consistent with the ratings' assumptions and does not, in itself,materially affect India's credit worthiness.'' The rating agency also affirmed its single `-B' foreign currency and `A-3' local currency short-term issuer credit ratings on the country.

"The consolidated budget deficit is expected to remain at about 8 per cent of GDP per year; in the medium term, this could push the general government debt stock (including debt covered by state-level guarantees) to more than 70 per cent of GDP and interest payments to 50 per cent of central government budgetary revenue, threatening long term debt sustainability. Government and public enterprise financing requirements could absorb up to 40% of domestic savings, crowding-out private sector borrowing activity, lowering India's overall return on investment even further, and thereby dimming growth prospects," the release said.

According to the rating agency, protectionism and vulnerability to terms-of-trade shocks, is the second biggest factor constraining India's ratings. "The continued existence of a complex regime ofquantitative controls on imports, combined with import-tariff increases in recent years, has thwarted greater openness in the economy, preserved trade protection, eroded export prospects, and distorted investment patterns in favour of inward-looking sectors,'' it said.

The deceleration of export growth rates to minimal levels damages the government's external debt-service capacity, constrains investor confidence and GDP growth, and augurs external imbalances. ``Over one-quarter of India's merchandise imports consist of petroleum and petroleum products. A sustained increase in world oil prices could accelerate external borrowing and raise total external indebtedness above the already-high 180% of exports," the S&P release stated.

The global rating agency feels that India's ratings are supported by ongoing regulatory and structural reforms in other sectors, as well as prudent international liquidity management. "To some extent, economic policy is shielded from the vagaries of coalition political by thelong-term economic and financial imperatives of market based liberalisation. Official foreign exchange reserves covered about 165% of total government, public sector, and private sector external principal-repayment obligations due within the next 12 months. At $32.6 billion on April 7, they mitigate the risk of a sudden loss of external confidence even as expects decelerate and the trade gap widens," S&P release added.

The release also said that greater fiscal rigor, large-scale privatisation, and a commitment to trade liberalisation would support an improvement in India's ratings going forward. This, along with more welcoming policies for export-oriented foreign direct investment, could stimulate growth prospects.