Positive Outlook For India Reflects Long-Term Growth Prospects On Policy Stability, Deepening Reforms: S&P

Rating agency S&P on Wednesday revised its outlook for India to ‘positive’ from ‘stable’. While affirming its long-term rating for India at ‘BBB-‘, the agency said it expects reforms to continue in the country.

“The positive outlook reflects our view that continued policy stability, deepening economic reforms, and high infrastructure investment will sustain long-term growth prospects. That, along with cautious fiscal and monetary policy that diminishes the government’s elevated debt and interest burden while bolstering economic resilience, could lead to a higher rating over the next 24 months,” S&P said in a statement.

S&P cited potential for an upgrade if fiscal deficits significantly narrow. It said a meaningful reduction in fiscal deficits could bring the net change in general government debt below 7% of GDP on a structural basis, which would be a crucial factor for a rating increase.

S&P noted, “The sustained rise in public investment in infrastructure is expected to boost economic growth. Coupled with fiscal adjustments, this could improve India’s weak public finances.”

The agency remains optimistic about India’s economic prospects, anticipating continuity in economic reforms and fiscal policies despite potential political changes.

S&P Global also affirmed its ‘BBB-‘ long-term and ‘A-3’ short-term ratings for India’s foreign and local currency sovereign credit.

The positive outlook reflects expectations of policy stability, economic reforms, and high infrastructure investment supporting long-term growth.

On the downside scenario, the ratings agency also mentioned that it may revise the outlook to stable if ‘we observe an erosion of political commitment to maintain sustainable public finances, which in turn signifies a weakening of the country’s institutional capacity.” Also, if current account deficits widen materially to weaken India’s external position such that the country becomes a narrow net external debtor, the rating can be downgraded to stable from stable.

S&P also said that it forecasts India’s real GDP growth at 6.8 percent this year, which compares favorably with emerging market peers amid a broad global slowdown. The government is scheduled to release GDP data for January-March quarter on May 31.