S&P upgrades India’s sovereign outlook to ‘Positive’ 

The upgrade reflects improved public spending quality and ongoing economic and fiscal reforms since 2014

May 30, 2024

A potential rating upgrade in the next 24 months depends on cautious fiscal and monetary policies reducing debt and interest burdens

Finance Minister Nirmala Sitharaman and Economic Affairs Secretary Ajay Seth welcomed the upgrade, attributing it to strong leadership and economic reforms

Other agencies, Fitch and Moody's, maintain stable outlooks for India, with BBB- and Baa3 ratings, respectively

The government's interim budget aims to reduce the fiscal deficit to 4.5% by FY26, with S&P projecting further improvements in the deficit and debt ratios by FY28

S&P Global Ratings upgraded India’s sovereign outlook to ‘positive’ for the first time in 10 years, citing improvements in public spending quality and expectations of continued reforms and fiscal policies. India’s rating remains at BBB-. The agency indicated a potential rating upgrade within the next 24 months if India maintains cautious fiscal and monetary policies that reduce government debt and interest burdens while enhancing economic resilience.

Finance Minister Nirmala Sitharaman welcomed the development, attributing it to the macroeconomic reforms since 2014, increased capital expenditure, fiscal discipline, and strong leadership. Economic Affairs Secretary Ajay Seth expressed confidence in the economy, noting that S&P recognised India’s economic strength through its upgraded outlook. He particularly acknowledged the Chief Economic Adviser’s team for their instrumental role in convincing S&P of this assessment, highlighting their valuable contribution.

S&P Global Ratings has highlighted India’s robust economic growth, improved government spending quality, and political commitment to fiscal consolidation as critical factors supporting the positive outlook. This positive outlook, which follows the agency’s upgrade of India’s outlook to ‘stable’ from ‘negative’ in 2014, reflects India’s solid growth and promising economic future. Finance Minister Nirmala Sitharaman has projected India to become the third-largest economy by the government’s third term and achieve Viksit Bharat by 2047, further reinforcing the optimism about India’s economic trajectory.

SBI Research suggested that a potential upgrade by FY27 would align with India becoming the third-largest economy. S&P noted the significant shift in government spending towards infrastructure, which is expected to alleviate bottlenecks, boost productivity, and support higher growth. The agency anticipates that these sound economic fundamentals will sustain growth over the next two to three years, regardless of election outcomes, due to continued economic reforms and fiscal policy stability.

The positive outlook underscores S&P’s belief that ongoing policy stability, deepening reforms, and significant infrastructure investments will sustain long-term growth.S&P stated that prudent fiscal and monetary policies reducing debt and interest burdens while boosting economic resilience could lead to a higher rating within 24 months. The government’s interim budget targets a fiscal deficit of 5.1% of GDP, aiming to reduce it to 4.5% by FY26. S&P forecasts the central deficit to decrease to 4.2% by FY28, lowering the general government deficit to 6.8% and reducing debt from 85% of GDP in FY24 to 81%.

Source: Economic Times

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