Summary :
S&P upgraded India's economic outlook to 'positive' from 'stable' while affirming its 'BBB-' rating, the lowest investment grade. Despite a high fiscal deficit, S&P highlighted India's strong growth and efforts towards fiscal consolidation. The country's infrastructure spending and ongoing reforms enhance its growth prospects. These ratings impact borrowing costs and are essential for investors evaluating creditworthiness.
On Wednesday, S&P Global Ratings revised the outlook for the Indian economy from 'stable' to 'positive' and affirmed the overall rating at 'BBB-', citing strong growth and improved quality of government expenditure.
'BBB-' is the lowest investment grade rating available. The last time S&P upgraded India's rating outlook was in 2010, moving it from negative to stable.
"India's robust economic growth positively impacts credit metrics," S&P stated.
"India's fiscal deficit remains elevated, but consolidation efforts are underway. We expect India's fundamentals to support growth momentum over the next 2-3 years," the firm added.
Fiscal Deficit Connection-
The agency indicated that it might upgrade India's rating if the fiscal gap significantly narrows. Finance Minister NirmalaSitharaman announced in the interim budget that the Indian government aims to reduce the fiscal deficit to 5.1 percent of GDP in FY25, down from 5.8 percent in FY24. The fiscal deficit, which represents the difference between government expenditure and revenue, is targeted to decrease to 4.5 percent of GDP by FY26 according to the fiscal consolidation roadmap.
Rating agencies suggest that the recent dividend boost of ₹2.11 lakh crore from the Reserve Bank of India could improve India's prospects for a sovereign rating upgrade. Experts believe this will provide the government with an additional fiscal space equivalent to 0.4 percent of GDP.
India's Infrastructure Boost-
"The prolonged increase in public investment in infrastructure will enhance economic growth dynamism. Coupled with fiscal adjustments, this could improve India's weak public finances. We may also raise the ratings if we see a sustained and substantial improvement in the central bank's monetary policy effectiveness and credibility, leading to a consistently lower inflation rate over time," S&P stated.
"The government's infrastructure spending will support India's growth trajectory. We anticipate continued reforms in India regardless of the election outcome," S&P stated. The country is currently voting in the 18th LokSabha elections, with Prime Minister NarendraModi appearing increasingly likely to secure a third consecutive term in office by June 4.
In May last year, S&P Global Ratings affirmed India's sovereign rating at 'BBB-' with a stable outlook, highlighting strong growth but noting weak fiscal performance and low GDP per capita as risks.
Until today, all three global rating agencies—Fitch, S&P, and Moody's—had assigned India the lowest investment grade rating with a stable outlook. These ratings are viewed by investors as indicators of the country's creditworthiness and influence borrowing costs.
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