S&P Enhances India’s Sovereign Rating Outlook To Positive, Sees More Upside In Next Two Years

Financial intelligence services firm S&P Global on 29 May upgraded its outlook for Indian economy from 'stable' to 'positive' giving it an 'A3' rating for the short term while maintaining its 'BBB-' rating for the long term.

"India's strong economic fundamentals will continue to drive the growth momentum in the coming years. Continued policy stability, deepening reforms along with cautious fiscal and monetary policies could lead to an even higher rating over the next 24 months," the firm in its reasoning for the upgrade in rating said.

Sovereign credit ratings issued by global financial intelligence firms like S&P, Fitch and Moody's are considered as important markers of an economy's strengths and weaknesses. They help foreign lenders and global portfolio investors ascertain the creditworthiness of a country before making any major investment decision.

Each financial intelligence firm has its own set of ratings and varying methodologies used to arrive at the same. In case of S&P Global, the sovereign ratings issued for a country range from 'AAA' to 'BBB-'. The latter, which has been maintained by the firm in case of India, was last changed in 2010.

At present, while S&P Global has enhanced the outlook to 'positive', Fitch and Moody's are yet to revise their rating from 'stable'.

Notably, while the Indian financial market observers wait for the results of the ongoing general elections scheduled to be declared on 4 June with bated breath, S&P Global expects continuity in fiscal policies and economic reforms regardless of the poll outcome.

The financial intelligence services firm further expects an improvement in the government spending and buoyant consumer demand aiding economic growth.

In the recently ended fiscal, union government's capital expenditure saw a 37.4 per cent increase at Rs 10 lakh crore. In it's bid to become the third largest economy in the coming years, the Union government for FY24-25 has raised the capital expenditure target by 11.1 per cent to Rs 11.11 lakh crore.

"A higher Gross Domestic Product (GDP) growth rate than that of the interest costs makes government's borrowings more sustainable. However, we expect India's debt to GDP ratio to reduce to 81 percent by fiscal 2028 from 85 percent currently," the S&P Global reportedly said.

In the recent budget for FY24-25, Union Finance Minister Nirmala Sitharaman had said that the government aimed to reduce the fiscal deficit from 5.8 per cent of the GDP reported in the last fiscal to 5.1 per cent by the end of the ongoing fiscal.

The financial intelligence services firm also said that growth rates will normalise starting this year to between 6.5 per cent to 7 per cent. This normalisation is expected considering that Indian economy is now in the acceleration phase.