S&P Global Ratings India Raises Outlook for India’s Sovereign Rating to ‘Positive’.

S&P Global Ratings India upgraded

MUMBAI, May 29 (Reuters) — S&P Global Ratings India upgraded India’s sovereign rating outlook to ‘positive’ from’stable’ while maintaining the rating at ‘BBB-‘ on Wednesday, citing the country’s solid economic performance as having a favourable influence on its credit metrics.

“We expect sound economic fundamentals to underpin the growth momentum over the next two to three years,” S&P stated, adding that regardless of the election outcome, economic reforms and budgetary policies would remain broadly consistent.

India’s six-week-long national election, the world’s largest, is nearing the close, with ballots set to be counted on June 4, and investors are betting on Prime Minister Narendra Modi winning a third term.

Finance Minister Nirmala Sitharaman described the S&P Global Ratings India upgrading as a “welcome development”.

“This reflects India’s solid growth performance and a promising economic outlook for the coming years,” stated a social media post.

The rating agency’s optimistic prognosis for India is based on its strong economic growth, significant improvement in the quality of government spending, and political commitment to fiscal restraint, it stated.

“We believe these factors are coalescing to benefit credit metrics,” S&P analysts said in a note.

The Indian rupee was off the day’s lows, and the benchmark 10-year bond yield fell three basis points to 6.99% following the outlook improvement.

According to S&P, India’s weak fiscal policy has always been the most susceptible aspect of its sovereign ratings profile.

Elevated budget deficits, a significant debt stock, and an interest burden continue, but the government is prioritising continuous consolidation measures, it said.

“With economic recovery now well on track, the government is again able to depict a more concrete (albeit gradual) path to fiscal consolidation,” according to the S&P analysts.

“Our projections indicate general government deficit of 7.9% of GDP in fiscal 2025 to slowly decline to 6.8% by fiscal 2028.”

S&P anticipates India’s economy to grow at a rate of over 7% per year over the next three years, which it says will have a moderating influence on the government debt-to-GDP ratio despite large budget deficits (S&P Global Ratings India ‘Positive’).

Its positive GDP growth to interest rate differential keeps government borrowing sustainable, according to S&P, which anticipates the nation’s debt to GDP ratio to fall to 81% by fiscal 2028, down from 85% now.

Price growth has slowed, allowing the central bank to terminate its monetary tightening campaign, and S&P anticipates a moderately softer monetary policy position by the end of fiscal 2025, it added.

The agency may raise India’s ratings if fiscal deficits narrow meaningfully, bringing the general government debt to below 7% of GDP on a structural basis, or if it observes a sustained and substantial improvement in the monetary policy of the central bank’s effectiveness and credibility, with inflation remaining low on a long-term basis, it said.

Alternatively, the agency could alter the forecast to stable if it sees a deterioration in political support for maintaining sustainable public finances or if current account deficits deepen considerably, weakening India’s external position.

“We will continue to engage effectively with them in making a case about the strength of the economy and potential rating upgrade,” Economic Affairs Secretary Ajay Seth told Reuters.

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