Standard & Poor's revision of India's long-term foreign currency outlook to 'stable' from 'negative' had already been discounted by the markets, as the decision to review the rating had been made sometime ago.

In view of the rapid rise in foreign exchange reserves, there was never any doubt that the outcome of the review would be positive.

Moreover, with the restrictions on external commercial borrowing, the change in outlook will have hardly any impact on the costs of Indian corporate borrowing, except perhaps in those instances where permission has already been given.

Further, with the restrictions on foreign institutional investor's investment in the Indian debt markets, the scope for larger inflows due to the revision in rating also does not exist.

As far as other investments are concerned, while the improvement in rating may enhance the already ubiquitous 'feel-good factor', very strong portfolio investment flows clearly indicate that investors are not particularly concerned about what rating agencies have to say.

The positive revision in outlook raises two questions. The first is whether it makes sense to deny the Indian corporate sector the opportunity to raise debt abroad.

It's interesting to note, for instance, that the ICICI Bank's $300 million five-year offering closed five times subscribed.

China has been soaking up money from the international markets like a sponge - in spite of its central bank's coffers bursting with foreign exchange.

It's a pity, therefore, that Indian companies are being denied the opportunity to access loan markets abroad at a time when liquidity has driven down borrowing costs to such low levels in the international markets.

The other important question is why the country's foreign currency rating continues to be below investment grade in spite of foreign exchange reserves approaching $100 billion.

The villain of the piece seems to be the fiscal deficit, with an S&P spokesman warning that if the deficit continues to rise it may not only result in the local currency rating becoming unsustainable, but may affect the foreign currency outlook as well.

In other words, the government's inability to tackle the deficit may result in the current boom petering out.

As a matter of fact, a recent study by Fitch Ratings pointed out that government debt in India is around 450 per cent of government revenue, compared to the average of around 200 per cent in BB-rated countries.

Only Turkey and Lebanon surpass India as far as debt interest as a percentage of revenue is concerned.

Moreover, if the government doesn't do anything about its deficit, government debt as a percentage of GDP is projected to shoot up from the current level of around 85 per cent to 105 per cent of GDP by 2010.

A fiscal adjustment of 3 per cent is needed to keep the deficit as the same percentage of GDP. It would be easy to dismiss the rating agencies' concerns as academic.