India's populist pre-election Budget, unveiled on Friday, sparked concern at credit rating agency Fitch which said the plans confirmed the government was unwilling to grasp the need to cut spending.

Fitch said once revenues were adjusted for privatisation receipts, the 2002-03 deficit was virtually unchanged from the previous year at six per cent of gross domestic product and points to a continuing general government deficit in excess of 10 per cent of GDP, among the worst of any rated country.

"Indeed, with growth slowing and a general election due by September 2004, the government faces a difficult dilemma: on the one hand, it would like to pump prime the economy but, on the other, the parlous state of public finances means that it has virtually no room to do so," Fitch said.

Finance Minister Jaswant Singh gave tax breaks for school fees, plans to develop universal healthcare insurance for the poor - at one rupee a day - and higher tax exemptions for senior citizens.

But Singh also promised to cut the fiscal deficit to 5.6 per cent of gross domestic product from 5.9, helped by lower interest rates and higher growth.

And despite the populist streak, the independent central bank gave the budget an early thumbs-up by cutting its key short-term interest rate, the repo rate, to five percent from 5.5 percent.

Fitch earlier his month affirmed India's long term foreign currency rating at BB.

Reuters