Boost for Indian economy! S&P upgrades India’s credit rating outlook to ‘positive’ from ‘stable’, ETCFO



S&P Global Ratings has maintained India’s sovereign rating while upgrading its outlook from ‘stable’ to ‘positive’. The agency attributes this change to the country’s strong economic growth, which is positively influencing its credit metrics, as stated in a report released on Wednesday. The credit rating was, however, maintained at ‘BBB-‘.

“We expect sound economic fundamentals to underpin the growth momentum over the next two to three years,” S&P said. The ratings agency anticipates a general continuity in economic reforms and fiscal policies, irrespective of the outcome of the general elections.

S&P’s positive outlook on India is based on the country’s robust economic growth, significant enhancements in the quality of government expenditure, and the government’s commitment to fiscal consolidation.

“We believe these factors are coalescing to benefit credit metrics,” the report added.

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India is currently in the final phase of its six-week-long national election, the largest in the world. As the vote counting is scheduled for June 4, investors are preparing for the possibility of Prime Minister Narendra Modi securing a third term in office.

S&P said that India’s weak fiscal settings have been the most vulnerable aspect of its sovereign ratings profile. The country faces persistent challenges such as elevated fiscal deficits, a large debt stock, and a significant interest burden. However, the government is prioritizing ongoing efforts to consolidate its fiscal position, it said.

S&P analysts have noted that with the economic recovery now well underway, the government is in a better position to present a more concrete, albeit gradual, path towards fiscal consolidation. The agency projects that the general government deficit will decrease from 7.9% of GDP in fiscal 2025 to 6.8% by fiscal 2028.

The agency expects India’s economy to grow at a rate of nearly 7% annually over the next three years, which should help moderate the ratio of government debt to GDP despite high fiscal deficits. S&P believes that India’s favorable GDP growth to interest rate differential is keeping government borrowing sustainable and expects the country’s debt to GDP ratio to reduce from the current 85% to 81% by fiscal 2028.

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S&P has stated that sustained deceleration in price growth has allowed the central bank to conclude its monetary tightening campaign, and the agency expects a moderately easier monetary policy stance before the end of fiscal 2025.

The agency may consider raising its ratings on India if fiscal deficits narrow significantly, bringing down the general government debt to below 7% of GDP on a structural basis, or if it observes a sustained and substantial improvement in the central bank’s monetary policy effectiveness and credibility, with inflation remaining low on a durable basis.

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S&P said it could revise the outlook to stable if it detects a decline in political commitment to maintaining sustainable public finances or if the current account deficits significantly widen, weakening India’s external position.

  • Published On May 29, 2024 at 04:17 PM IST

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