Synopsis
A very important news has come out from the point of view of India’s economy. It is being told that finally after 14 years, India’s credit rating made positive by S&P Global. Basically, if you see the outlook, it is in three categories. One is negative, second is stable and last is positive.
So sometime ago, for India it was made stable from negative and now made positive from stable. There are three main global rating agencies S&P, Fitch and Moody’s. They provide rating to countries which looked by investors as barometer for country’s creditworthiness and impact on borrowing costs.Â
Let’s see what India has done for its economy for which our outlook has been made positive.
Table of Contents
What is the Purpose of India's Credit Rating by S&P?
Before knowing the reason of positive outlook for India’s credit rating, let’s understand why agencies like S&P, Moody’s or Fitch provide these ratings.
So credit rating of a country is an assessment done by Moody’s, Fitch or S&P for medium term perspective —typically six months to two years—is known as a credit rating outlook. It expresses the agency’s assessment of the likelihood of an upgrade, downgrade, or stability for the rating of the country.Â
This outlook helps investors understand the possible future changes in creditworthiness and assists in making more informed investment decisions.
India's Credit Rating Outlook by S&P
The rating agency S&P Global Ratings updated its forecast for the Indian economy on Wednesday, moving it from “stable” to “positive.” It also maintained the country’s overall grade of “BBB-,” citing strong growth and higher-than-expected government spending. “India’s robust economy growth positive impacts credit metrics,” S&P said.
India’s fiscal deficit elevated, but consolidation efforts are on. We expect India’s fundamentals to aid growth momentum in next 2-3 years, said S&P.Â
According to the agency, if there is a significant narrowing of the fiscal imbalance, India’s rating may be upgraded. In the interim Budget, Finance Minister Nirmala Sitharaman declared that the government of India hopes to reduce the fiscal deficit from 5.8% of GDP in FY24 to 5.1% of GDP in FY25. The difference between government revenue and expenditures is known as the fiscal deficit.
As per the fiscal consolidators strategy, India aims to reduce its fiscal deficit to 4.5% of GDP by the fiscal year FY26.
According to rating agencies, India’s chances of having its sovereign rating upgraded may be enhanced by the Reserve Bank of India’s recent dividend increase of Rs 2.11 lakh crore. Experts estimate that will give the government an additional 0.4% of GDP.
S&P Predictions for India's Growth in Future
“The protracted rise in public investment in infrastructure will lift economic growth dynamism that, combined with fiscal adjustments, could alleviate India’s weak public finances. We may also raise the ratings if we observe a sustained and substantial improvement in the central bank’s monetary policy effectiveness and credibility, such that inflation is managed at a durably lower rate over time,” S&P said.
“The government’s infrastructure spend will aid India’s growth trajectory. We expect a continuity in India reforms regardless of poll outcome,” S&P said.Voting for the 18th Lok Sabha is presently underway throughout the nation, and on June 4, Prime Minister Narendra Modi appears to have a good chance of retaking the Central government for a third term in a row.
Although S&P Global Ratings noted low GDP per capita and poor fiscal performance as vulnerabilities, it maintained India’s sovereign rating at ‘BBB-‘ with a stable growth outlook in May of last year.
Conclusion
So, S&P Global’s affirmative credit rating outlook for India is a clear indication of their high level of trust in the country’s fiscal and economic policies. India’s creditworthiness has been improved by its consistent structural reforms, cautious fiscal policies, and strong economic development, all of which are reflected in this forecast.
The bright future also highlights hopes for a long-term economic rebound following the epidemic, supported by strong domestic investment and consumption in addition to improving foreign circumstances. Such support not only increases investor confidence but also creates a positive environment for India to continue its efforts to modernize its infrastructure and pursue economic development.
To achieve long-term economic stability and growth, however, maintaining this good trajectory requires a constant focus on debt management, reform implementation, and resolving structural issues.
