New Delhi: After a gap of about 10 years, S&P Global Ratings on Wednesday upped India’s outlook to positive from stable on robust growth prospects for next three years and public spending, and raised hopes for an upgrade in two years provided the government continues reforms and policies to keep fiscal deficit under check.
While retaining India’s sovereign rating at the lowest investment grade of ‘BBB-’, S&P said its expects broad continuity in economic reforms and fiscal policies, irrespective of the election outcome. Results of the ongoing general elections will be announced on June 4.
“India outlook revised to positive on robust growth and rising quality of Government spend,” S&P said, while affirming long-term rating at ‘BBB-’.
The ratings are looked at by investors as a barometer of the country’s creditworthiness and has impact on borrowing costs. Last in 2014, S&P had upped India’s outlook to stable from negative.
“Our positive outlook on India is predicated on its robust economic growth, pronounced improvement in the quality of government spending, and political commitment to fiscal consolidation. We believe these factors are coalescing to benefit credit metrics,” S&P said. Irrespective of the June 2024 general election results, S&P expects the incoming government to carry on economic reforms to support the “growth vigor”, continued infrastructure investment drive, and commitment to fiscal consolidation.
The finance ministry has been pushing for a rating upgrade on the back of improved fiscal management and strong economic fundamental, including high foreign exchange reserves.
S&P’s rating commentary comes within a week of RBI’s record Rs 2.10 lakh crore dividend transfer to the government. The funds may be used to reduce the Centre’s fiscal deficit.
The government hopes to bring down fiscal deficit to 5.1 per cent of GDP by March 2025 and further to 4.5 per cent by March 2026. “We expect sound economic fundamentals to underpin the growth momentum over the next two to three years. Regardless of the election outcome, we expect broad continuity in economic reforms and fiscal policies,” S&P said. It said the composition of government spending has been transformed, with an increasing share going to infrastructure. This will ease bottlenecks to put the country on a higher growth trajectory.
S&P said India’s robust economic expansion is having a constructive impact on its credit metrics. “We expect sound economic fundamentals to underpin the growth momentum over the next two to three years. Regardless of the election outcome, we expect broad continuity in economic reforms and fiscal policies,” S&P said.