Global agency Fitch Ratings on Tuesday retained India's long-term foreign and local currency ratings at the speculative grade, saying that while the country's external account had improved, local public finances had deteriorated.

Fitch affirmed India's long-term foreign currency at 'BB' and local currency ratings at 'BB+'. The short-term foreign currency rating is 'B', which indicates highly speculative category.

"India's international liquidity position has strengthened, with international reserves (excluding gold) rising by $18 billion between March 2002 and January 2003," Fitch said.

"However, growing prospect of a conflict with Iraq could expose India's dependence on oil imports and overseas workers' remittances from the Middle East."

The agency also expressed concern over India's public finances and said there was a need to reform its banking system and implement fiscal consolidation.