In a rare move, S&P Global Ratings on Wednesday raised its outlook for India to ‘positive’ from ‘stable’ while retaining the lowest investment grade sovereign credit rating (BBB-) ahead of the results of the general election on June 4.

In a post on X, Union Finance Minister Nirmala Sitharaman said the S&P Global Ratings decision reflects the country’s solid growth performance and a promising economic outlook for the years ahead. “This has been possible due to the series of broad-based economic reforms undertaken since 2014, as well as capital expenditure, fiscal discipline, and decisive and visionary leadership,” she said.

This is the first outlook revision for the country by S&P, one of the so-called ‘Big Three’ credit rating agencies, since September 2014. The other two rating agencies, Fitch and Moody’s, have a ‘stable’ outlook for India, and the lowest investment grade sovereign rating.


Revising its outlook, S&P said it expects broad continuity in economic reforms and fiscal policies, irrespective of the election outcome. “India’s robust economic expansion is having a constructive impact on its credit metrics. We expect strong economic fundamentals to support growth momentum over the next two to three years,” it said.

However, S&P cautioned that it could revise the outlook downward to stable if political commitment to maintaining sustainable public finances wanes, which would signal a weakening of the country’s institutional capacity.

S&P said continued policy stability, deep economic reforms, and high infrastructure investment, along with cautious fiscal and monetary policy, could lead to a higher rating over the next 24 months.

“If India’s fiscal deficit narrows meaningfully, bringing the net change in general government debt to below 7 per cent of gross domestic product (GDP) on a structural basis, we could raise the rating. Long-term increases in public investment in infrastructure would enhance economic growth dynamism, which, combined with fiscal accommodation, could alleviate India’s fragile public finances,” it said.

S&P said it could raise the rating if it sees sustained and substantial improvement in the central bank’s monetary policy effectiveness and credibility to manage inflation at a low rate over time.

Meanwhile, SBI in a research report on Wednesday said India’s rating could improve by FY27, in sync with the tag of third largest economy. “On the bright side, the macroeconomic reforms initiated with fiscal discipline as well as massive public capex are expected to lead to a robust growth in private capex as well, ensuring a strong and healthy investment and consumption environment, which is also acknowledged by S&P,” it said.

S&P expects India’s real GDP growth to grow at close to 7 per cent annually over the next three years. “We forecast India’s real GDP growth to be 6.8 per cent this year (FY25), outperforming emerging markets amid a broad global slowdown,” it said.

S&P said India’s weak fiscal position has always been the weakest part of its sovereign rating profile, and now that the economic recovery is well on track, the government is once again able to chart a more solid, albeit gradual, path to fiscal consolidation.

It projects a general (centre+state) government deficit of 7.9 per cent of GDP in FY25, which could gradually decline to 6.8 per cent by FY28.

The government will release the fiscal deficit and GDP figures for FY24 on May 31. Under its fiscal glide path, the government aims to reduce the fiscal deficit to 4.5 per cent of GDP by FY26. The fiscal deficit target for FY25 has been set at 5.1 per cent of GDP.

“The performance of the Indian economy in recent years highlights its historical resilience… We believe the balance sheets of India’s corporate and financial sectors are stronger than they were before the pandemic,” S&P said.

first published: May 29, 2024 | 3:37 pm First

Leave a Reply

Your email address will not be published. Required fields are marked *