According to S&P's APAC Managing Director Kim Eng Tan, India's rating can be improved if the country drastically cuts its fiscal deficit. India is now rated 'BBB-' by S&P Global Ratings, with a stable outlook. According to a Moneycontrol report, Kim stated that India's fiscal success is a crucial aspect in this judgment.
"India's fiscal performance has been very weak from the start." Even with the recent improvements, it remains a very poor fiscal performance as compared to the parameters we are evaluating it against. As a result, "we are unlikely to see further upside pressures on the rating unless we see significantly more fiscal consolidation and bringing deficits down significantly more than what we have seen recently," Tan added.
State-Specific Indicators
Rating agencies such as S&P examine combined central and state debt and deficit indicators at the state level. According to projections, Indian state fiscal deficits will climb from 2.8 percent of GDP in 2022-23 to 3.1 percent in 2023-24. Nonetheless, despite budgetary challenges, India's GDP has grown rapidly. Tan went on to say that the country's GDP has "increasingly smartly."
"The Indian growth story will not end this year." However, we have already fully credited India for its economic growth as well as its other strengths, such as its relatively deep domestic bond market, monetary credibility, and foreign balance sheet. "An improvement on the fiscal front could lead to an upgrade in India's credit ratings," Tan added.
The S&P India GDP Forecast is Positive
On the back of strong domestic tailwinds, the rating agency increased India's GDP growth outlook for FY24 to 6.4 percent from 6 percent last month.
"We have revised up our projection for India's GDP growth for fiscal 2024 (ending in March 2024) to 6.4 percent, from 6 percent, as robust domestic momentum seems to have offset headwinds from high food inflation and weak exports," S&P Global said in a letter to clients. However, it reduced its growth forecast for FY25 to 6.4 percent from 6.9 percent previously.
Furthermore, S&P predicted earlier this month that India will become the third-largest economy by 2030, with GDP expected to rise from 6.4 percent in 2023 to 7 percent in 2026. India currently has the world's fifth largest economy, trailing only the United States, China, Germany, and Japan. "We expect India to achieve 7% in fiscal 2026-27..."By 2030, India will be the third-largest economy, and we expect it to be the fastest-growing major economy in the next three years," S&P added.
Will Growth Take Off?
According to S&P's "Global Credit Outlook 2024," India is expected to be the world's fastest-growing emerging market. However, evaluating whether the country can successfully transition into the next big global manufacturing powerhouse is a vital task.
The research also stated that India's growth is expected to be 6.4 percent in FY24, down from 7.2 percent in the previous fiscal year. The rating agency predicts that the growth rate will remain at 6.4 percent in 2024-25 before increasing to 6.9 percent the next year and reaching 7 percent in 2026-27.
The Indian government intends to run a fiscal deficit of 5.9 percent of GDP in the current fiscal year, with the goal of reducing it to 4.5 percent by 2025-26. However, the Union Finance Ministry has yet to provide clarity on plans beyond 2025-26. The initial budget deficit objective of 3% has been suspended due to the impact of the COVID-19 epidemic.
