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Published: May 30, 2024
Updated: May 30, 2024

S&P Elevates India's Economic Outlook to 'Positive,' Retains 'BBB-' Rating Economic Outlook Upgrade

S&P Global Ratings has revised India's economic outlook from 'stable' to 'positive' while maintaining the sovereign rating at 'BBB Minus'. This upgrade, the first in a decade, reflects robust economic growth and improved quality of government spending. Notably, India’s rating has held steady at BBB- since January 2007.

Prospects of Rating Upgrade

The positive outlook indicates a potential rating upgrade within the next two years. S&P noted that consistent policy stability, deepening economic reforms, and high infrastructure investment are expected to sustain long-term growth. A disciplined fiscal and monetary policy approach, reducing the government's debt and interest burden, could further enhance economic resilience and potentially lead to a higher rating.

Fiscal and Monetary Policy Improvements

S&P highlighted that India’s fiscal deficit needs to narrow significantly for a rating upgrade, with general government debt changes falling below 7% of GDP. Enhanced public investment in infrastructure could boost economic growth, combined with fiscal adjustments to improve public finances. The agency also mentioned the need for sustained improvements in the central bank’s monetary policy to manage inflation effectively.

Risks to Outlook

Despite the positive outlook, S&P warned that it could revert to a stable outlook if political commitment to sustainable public finances weakens. A significant widening of current account deficits that undermines India’s external position could also lead to a downgrade in outlook.

Economic Fundamentals

S&P emphasized that India's robust economic expansion is positively impacting its credit metrics. The agency expects strong economic fundamentals to support growth over the next two to three years, regardless of the general election outcome, predicting continuity in economic reforms and fiscal policies.

Expert Commentary

Achala Jethmalani, Economist at RBL Bank, noted that India’s fiscal management, improved revenue-capital expenditure mix, and positive growth outlook are aligning to potentially secure a long-awaited sovereign rating upgrade. She expressed optimism about a rating upgrade in the next 18-24 months, given India's commitment to fiscal consolidation and favourable growth-inflation outlook.

Key Factors Behind the Upgrade

● Robust Economic Growth: Sustained near 7% annual GDP expansion over the next three years.
● Improved Government Spending: Enhanced quality and focus on productive expenditures
● Political Commitment: Ongoing commitment to fiscal consolidation and economic reforms.
● Infrastructure Development: Continued improvements to remove growth bottlenecks.
● Fiscal Consolidation Path: Expected reduction of the general government deficit to 6.8% by fiscal 2028 from 7.9% in fiscal 2025.

S&P’s revised outlook for India highlights the country's strong economic trajectory and fiscal discipline. With continued reforms and infrastructure investments, India is on a promising path to potentially achieve a rating upgrade, reinforcing its economic resilience and growth prospects.