S&P Global affirms India’s BBB sovereign rating, flags slippage risk | Economy & Policy News

S&P Global on Thursday affirmed India’s sovereign credit rating at BBB and retained its “stable” outlook for the economy, citing policy stability and high infrastructure investment, which is expected to support India’s growth prospects. However, the agency also flagged risk of slippage for the Centre’s fiscal deficit in the current financial year of 2026-27 (FY27).

“The sovereign credit ratings on India are anchored by a dynamic and fast-growing economy, strong external balance sheet, and stable institutions that support policy predictability,” S&P Global said. “Counterbalancing these strengths are the government’s weak fiscal performance and burdensome debt stock, as well as low GDP (gross domestic product) per capita,” it added.

The agency flagged risk of slippage for the Centre’s fiscal deficit target due to a likely shortfall in revenue following the cut in excise duty on fuel earlier this year. and potential expenditure overshoot on fertiliser subsidy. “While the Union fiscal deficit may exceed its current Budget target, we believe India remains committed to fiscal consolidation, even as it maintains its strong infrastructure drive,” S&P Global said.

The central government has set a fiscal deficit target of 4.3 per cent of GDP for FY27. The agency expects the Centre’s deficit to narrow to 3.9 per cent of GDP by FY30.

“We may raise the ratings if fiscal deficits narrow meaningfully such that the net change in general government debt falls below 6 per cent of GDP on a structural basis,” the agency said.

S&P Global had raised India’s sovereign rating to BBB from BBB- last year itself.

The agency has projected a growth of 6.6 per cent for India’s GDP in the current year, slower than 7.7 per cent in FY26. “The current fiscal year is characterised by significantly lower rainfall, denting agricultural output. Higher energy prices alongside elevated food inflation will slow growth in fiscal 2027,” the rating agency said.

Elevated energy prices amid West Asia conflict and El Nino-led monsoon risk are also likely to raise India’s headline inflation in near term, with S&P Global projecting it to increase to 5.1 per cent in FY27 from an average of 2.1 per cent in FY26. However, inflation is expected to ease to 4.7 per cent next year and remain within the Reserve Bank of India’s (RBI’s) tolerance band of 2-6 per cent over the next three to four years, the agency said.

“We anticipate solid consumer and public investment dynamics to propel real GDP growth to average 7.0 per cent over the next three fiscal years,” it added.

The strong growth momentum in the medium term is also expected to help India moderate the ratio of government debt to GDP despite wide fiscal deficits, the agency said, adding that it projects the debt ratio to decline to 79.3 per cent by FY30 from 85.4 per cent in FY25. “This takes India closer to its pre-pandemic debt levels and well below the pandemic peak of 93.3 per cent of GDP,” it said.

Overall, the agency’s commentary suggests India must focus on its debt as the next key metric for management. Earlier this month, another rating agency, Fitch, also maintained similar commentary on India’s debt level, while affirming its rating of BBB- and stable outlook.