India's foreign exchange reserves are expected to top $150 billion by the end of December 2004 from the existing $110 billion.

According to senior government officials, the divestment of public sector undertakings and revaluation reserves will be the primary factors behind the surge.

Swelling reserves

In the first nine months of 2003-04, India's forex reserves went up by $25.5 billion from $75.04 billion to $100.59 billion In the first nine months of 2004-05, India's forex reserves is expected to increase by $40 billion from $110 billion to $150 billion

In the first nine months of 2003-04 (April to December 2003), India's forex reserves went up by $25.55 billion from $75.04 billion to $100.59 billion.

The increase of about $40 billion will represent a growth of about 36 per cent compared to 25 per cent growth in the same period last fiscal.

The officials said the balance of payments monitoring committee of the Reserve Bank of India was contiguously assessing the situation in the external sector. "While no explicit target has been set, the forex reserves were expected to cross the $150 billion mark by the end of the calendar," they said.

Meanwhile, global rating agency Standard & Poor's on Monday said it was bullish on India's external sector and economic growth prospects. It is, however, concerned about the combined fiscal deficit of the Centre and states, estimated at about 10 per cent of the gross domestic product at the end of 2003-04.

"Clearly, in terms of growth and the external sector, there is a very positive story," said Paul A Coughlin, S&P's managing director, Asia-Pacific, after a detailed presentation by a North Block team led by Ashok K Lahiri, chief economic adviser in the finance ministry.

The S&P team is here on a five-day visit to assess the policy and political environment in the country.

"We are most concerned about the size of the fiscal deficit, both at the central and state government levels, and the loss-making electricity sector. Some of the key stuff is fiscal consolidation. The health of public sector finances is something for the government to look at," Coughlin said.

In the third quarter of 2003-04, the Central Statistical Organisation had estimated GDP growth of 10.4 per cent. India ranked as one of the fastest growing economies during the October-December 2003 quarter, overtaking China.

In the first two quarters, the GDP growth rate was estimated at 5.7 per cent and 8.4 per cent, respectively. The government has projected the economy will grow at over 8.1 per cent during 2003-04.

Most rating agencies have placed India's sovereign rating in the junk category primarily because of its inability to rein in its fiscal deficit.

India has an investment grade 'Baa3' rating from Moody's Investor service, which takes into account India's growth and robust external health. But S&P and Fitch have accorded India junk status, with ratings of BB and BB-plus, respectively.

The government has estimated the fiscal deficit at 4.8 per cent of GDP for 2003-04. Multilateral institutions, including the International Monetary Fund have termed the high fiscal deficit of the Centre and states as a matter of concern.