A sovereign rating upgrade for India in the next 24 months is possible if the central government is able to prudently manage its finances and bring down fiscal deficit to 4% of GDP, an S&P Global Ratings official said on July 3.
| Photo Credit: PTI
A sovereign rating upgrade for India in the next 24 months is possible if the central government is able to prudently manage its finances and bring down fiscal deficit to 4% of GDP, an S&P Global Ratings official said on July 3.
S&P Global Ratings Director, Sovereign Ratings, YeeFarn Phua, said the trigger for upgrade would be general government (Centre + states) deficit falling below 7% of the GDP, and a lot of this would have to be driven by the central government.
“If the central government is able to bring down fiscal deficit to 4% of the GDP, we will consider a rating upgrade over the next 24 months,” Mr. Phua said.
The central government estimates to bring down fiscal deficit to 5.1% of the GDP in the current fiscal, from 5.63% in 2023-24.
As per the fiscal consolidation roadmap, the deficit — the difference between government expenditure and revenue — will be brought down to 4.5% by 2025-26.
The U.S.-based rating agency had in May upgraded outlook for India to positive, from stable, while retaining the rating at ‘BBB-’.
Phua further said the Indian economy has clocked an average of 8% growth in the last three years, driven by domestic consumption and infrastructure investment that has made real difference on the ground.
“We see the medium-term growth potential for India at 7%,” Mr. Phua said.
If the infrastructure bottlenecks are removed, that will lead to 8% growth potential without the risk of overheating, he added.
S&P estimates India’s economic growth at 6.8% in the current fiscal, lower than 8.2% in the last fiscal.
S&P Global Ratings Chief Economist, Asia-Pacific, Louis Kuijs said India is the fastest growing economy in the Asia region.
The impact of Covid on Asian economies are behind us and growth is in the process of picking up steam, he said.
“We did notice that Covid had a large impact on growth trajectories, especially in countries like India… India is recouping some of the lost ground and is growing faster than we had expected four years ago,” Mr. Kuijs said.
