Singapore: India's budget deficit, at its highest in a decade, won't lead to a government debt default, an International Monetary Fund (IMF) official said, four months after the lender said rising borrowings were "potentially unsustainable".

"They've been able to finance their deficits, finance them in a non-inflationary fashion," Thomas Dawson, director of IMF's external relations department, told reporters in Singapore. "That's one of the reasons why the fund needs to be a little more discriminating in terms of its analysis."

Lenders and rating companies have criticized Prime Minister Atal Behari Vajpayee's government for spending more than it earned in taxes, faltering in asset sales, and failing to trim the size of the government. Last month (December), the Asian Development Bank said India's budget deficit had gone "out of hand".

Standard & Poor's said this week it would keep its junk rating on the country because of "serious fiscal inflexibility".

In its annual assessment of Asia's third-biggest economy in August, the IMF estimated the combined annual budget deficit of India's federal and state governments to have exceeded 10 per cent of gross domestic product, among the highest in the world. Government debt, mostly local, stands at four-fifths of GDP.

PTI