Tuesday, January 4 2005 17:48 Hrs (IST) - World Time -

New Delhi: Warning India of high fiscal deficit and debt burden, global rating agency Standard & Poor's said the country was unlikely to sustain high growth as was achieved by East Asian tiger economies.

"Indian Government runs larger fiscal deficits and has accumulated more debt as a share of GDP (Gross Domestic Product) than its Chinese counterpart... India is unlikely to follow the path of East Asian tigers, such as Korea, Taiwan or even China in attaining very rapid growth rates over a prolonged period of time," S&P said in a report.

"It may follow the path of Thailand or Italy, which experienced good economic growth and falling poverty thanks to a dynamic private sector, despite many years of squabbling coalition Governments," it said in the report titled 'China, India, and the Fate of Globalisation'. "Or, it may follow the path of Brazil, a large country with an impressive private sector...," it said.

In contrast, China may follow the path of Taiwan and Korea, which have grown rapidly under authoritarian Governments, S&P said.

S&P assigned 'BBB+' investment-grade long-term foreign currency rating and positive outlook to China, compared with a 'BB' speculative-grade long-term foreign currency rating and positive outlook assigned to India.

The gap in the ratings is largely explained by China's stronger fiscal position and lower debt burden.

Although S&P expects India to continue to grapple with "identity politics", it also said "the country may develop a stronger political consensus on economic reform."

S&P said India invested heavily in political development, adopting democracy at an earlier stage of development than other countries.

"As a result, its leaders faced pressure for redistributive and populist policies at an earlier stage of economic development compared with many East Asian countries."

Comparing the economic and human development records of India and China, S&P further said, "The huge gap in economic and social performance within India shows that a broad range of outcomes is possible within a democratic framework."

For example, "some States like Kerala, enjoy a lower birth rate than and a comparable literacy rate with China, while others (e.g. Bihar) fail badly on both counts. The flaws of Indian State and local Governments are due to many factors that "less" democracy may not have fixed."

Praising Indian leaders for giving priority to faster GDP growth through market forces and to reducing, or at least containing, populism, S&P said, "In attaining a comparatively more mature level of political development, India has solved the biggest long-term challenge facing China."