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January 6, 1999

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Moody's assigns Ba2 for foreign currency bonds, Ba3 for bank deposits

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International credit rating agency Moody's Investors Services today assigned the Ba2 rating for foreign currency bonds and Ba3 for foreign currency bank deposits of India reflecting a ''poor state of public finances, widening external deficit and failure to establish a coherent growth-oriented macro- economic policy framework''.

In its annual report on India, Moody's, however, acknowledged that there was a growing recognition of intransigence of these problems across the country's political parties, business leaders and a broad section of the population, leading to deepening of neccesary efforts over the medium-term.

Moody's expressed concern over rise in inflation, higher prices and rising tension in an already divisive political environment.

Moody's found large government deficit worrisome in view of heavy public sector debt and debt servicing burden.

The rating agency noted that the government's increased financial needs raised dependence on domestic bank borrowings contributing to tightening of monetary policy and exacerbating the economic slowdown.

UNI

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