 "growth gdp economy")
S&P may raise India’s ratings if there is a sustained and substantial improvement in the central bank’s monetary policy effectiveness and credibility, such that inflation is managed at a durably lower rate over time.
S&P Global Ratings on Wednesday revised its outlook on India to positive from stable while affirming the lowest investment-grade rating within expectations of broad continuity in economic reforms and fiscal policies regardless of the election outcome.
S&P has affirmed India’s long-term sovereign rating at BBB- and short-term at A-3. “India’s robust economic expansion is having a constructive impact on its credit metrics. We expect sound economic fundamentals to underpin the growth momentum over the next two to three years,” S&P’s report said.
However, the rating agency could revise the outlook to stable if there is an erosion of political commitment to maintain sustainable public finances, which would signify a weakening of the country’s institutional capacity.
“The positive outlook reflects our view that continued policy stability, deepening economic reforms, and high infrastructure investment will sustain long-term growth prospects,” S&P Global Ratings said.
It said that cautious fiscal and monetary policy that diminishes the government’s elevated debt and interest burden while bolstering economic resilience could lead to a higher rating over the next 24 months.
The rating agency has estimated that India’s real gross domestic product (GDP) growth in the past three years averaged 8.1 per cent annually and is expected to expand close to 7.0 per cent annually over the next three years.
“We forecast India’s real GDP growth at 6.8 per cent this year, which compares favourably with emerging market peers amid a broad global slowdown,” S&P Global Ratings said.
While noting that India’s weak fiscal settings had always been the most vulnerable part of its sovereign ratings profile, S&P said that with economic recovery now well on track, the government is again able to depict a more concrete, albeit gradual, path to fiscal consolidation.
It has projected a general government deficit of 7.9 per cent of GDP in FY25, slowly declining to 6.8 per cent by FY28.
Fiscal deficit and GDP data for 2023-24 will be released by the government on May 31. The government, under its fiscal glide path, aims to reduce the fiscal deficit to 4.5 per cent of GDP by 2025-26 (FY26). The FY25 fiscal deficit target has been set at 5.1 per cent of GDP.
“The performance of the Indian economy in recent years highlights its historical resilience… We believe India’s corporate and financial sectors have stronger balance sheets than before the pandemic,” S&P said.
First Published: May 29 2024 | 3:37 PM IST
