Global rating agency S&P Global Ratings has affirmed India’s short-term unsolicited foreign and local currency credit rating of BBB-/A-3, stating that India’s economy is performing well despite global challenges. It said that India’s economy is expected to post real GDP growth of around 6% this year, which compares favorably to emerging markets amid a broader global slowdown.
According to S&P, the long-term rating of the country’s economic prospects is “stable”. “The stable rating outlook reflects our expectation that India’s solid economic fundamentals will be sufficient to offset the government’s weak fiscal performance and help sustain increased government borrowing needs and high interest rates over the next 24 months,” says the New Yorker global rating agency in their latest report.
Regarding the downside scenario, S&P said it could lower India’s ratings if the country’s economic growth slows significantly and sustainably to an extent that negatively impacts the country’s financial sustainability. Such rating action could occur even if changes in government net debt, government debt-to-GDP ratio, or government interest burden significantly exceed S&P forecasts, it said, adding that it would weaken institutional capacity to maintaining sustainable public finances would mean .
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On the other hand, India’s ratings could be upgraded if its fiscal metrics “improve dramatically” or if “sustained and material improvement” in the RBI’s monetary policy effectiveness and credibility is observed and inflation is managed at a persistently lower level over time.
In its justification for the India ratings, S&P said India remains a “dynamic, fast-growing economy” with a strong external balance sheet and democratic institutions that support political predictability and compromise. However, these strengths are offset by the government’s “weak fiscal performance and burdensome debt levels, as well as the economy’s low GDP per capita,” it said.
According to S&P, India’s economy has moved out of the pandemic-related downturn into a rapid recovery phase. Still, the economy has maintained good momentum, it said, adding that solid consumer and investment momentum is expected to boost real GDP growth to 6% in FY2024 and 6.9% in FY2025 and FY2026.
Also Read: RBI MPC Raises FY24 GDP Growth Forecast to 6.5%
In terms of higher capital expenditures, S&P believes that rising capital expenditures (CAPEX) by the center and to some extent by the states will help boost investment and stimulate construction. “Based on the budget plans for fiscal 2024 and our expectation of strong revenue growth, we expect this support to continue in the current fiscal year.”
Initiatives like the introduction of a goods and services tax in 2017 and incremental progress in resolving legacy bad debts underpin solid growth prospects and stronger balance sheets, they said.
It is said that the central government’s budgets have been increasingly geared towards investment spending over the past three years. Following an increase in total effective investment of 27.8% and 26.1% in FY2022 and FY2023, the Company plans a further increase in allocations of 30.1% in FY2024. “More effective investment programs should help alleviate India’s widespread lack of physical infrastructure capacity.”
Also Read: Indian Economy to Grow 6.7% in 2024: UN
