New Delhi: International rating agency Standard & Poor's today (May 31, 2004) said India's rating can improve if the new Government reduces fiscal deficit and continues reforms to maintain a high economic growth.

S&P, which pegged India's GDP growth at 6.0 per cent for this year compared to 8.0 per cent last year, also said the Budget for 2004-05 will be a "litmus test" for Congress-led United Progressive Alliance (UPA) Government.

"A better fiscal performance, along with structural reform to maintain country's growth prospects and its strong external profile could lead to an improved foreign currency rating," S&P director Ping Chew said in a statement.

The Government's ability to improve the fiscal situation and deepen structural reforms will be key factors for the foreign currency now at "BB" with stable outlook and local currency rating of "BB+" with a negative outlook, he said.

"The new Government's signals on policy orientation have been mixed thus far, but are less alarming than initially feared," Chew said.

A concerted effort to control the fiscal deficit and stabilise the Government's debt burden would help India's creditworthiness, he said.

"If these efforts fail, local currency rating could be pressured downwards," he warned.

The appointments of reform-minded officials Manmohan Singh as Prime Minister and P Chidambaram as Finance Minister have removed some uncertainties over the general direction of policies and point to the continuation of reforms.