S&P upgrades India's economic outlook for first time since 2010
S&P Global Ratings has revised its outlook for the Indian economy from 'stable' to 'positive', while maintaining rating at 'BBB-', the lowest investment grade rating. This marks the first upgrade in India's economic outlook by the agency since 2010, when it shifted from 'negative' to 'stable.' The revision is attributed to robust growth and improved quality of government expenditure. These ratings are important because they influence the interest rates India has to pay when borrowing money on the international market.
S&P acknowledges India's fiscal deficit, notes consolidation efforts
S&P acknowledged India's elevated fiscal deficit but noted that "consolidation efforts are underway." The firm expressed optimism about the country's economic future, stating, "We expect India's fundamentals to aid growth momentum in 2-3 years." The agency also indicated a potential upgrade in India's rating if the fiscal gap narrows significantly.
India's fiscal deficit reduction plan and S&P's response
Finance Minister Nirmala Sitharaman announced in the interim budget that the Indian government aims to reduce the fiscal deficit from 5.8% of GDP in FY24 to 5.1% in FY25. Further reduction to 4.5% of GDP is planned by FY26, according to the fiscal roadmap. S&P stated that such fiscal adjustments, along with an extended rise in public investment in infrastructure, could alleviate India's weak public finances.
S&P's expectations for India's monetary policy and infrastructure spend
S&P noted that it may raise ratings if there is a sustained and substantial improvement in the central bank's monetary policy effectiveness and credibility, leading to durable inflation management. "The government's infrastructure spend will aid India's growth trajectory. We expect a continuity in India reforms regardless of poll outcome," the agency said. Last year, S&P affirmed India's BBB- rating (stable outlook) but flagged fiscal and GDP per capita concerns.
