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S&P Global Ratings on Thursday affirmed its ‘BBB’ long-term sovereign credit rating on India, with the fast-growing economy and strong external balance sheet seen counterbalanced by the government’s weak fiscal metrics, high debt stock, and a low per capita GDP.
High energy prices and challenging agricultural conditions will slow India’s GDP growth this financial year while the central government fiscal deficit is also likely to exceed the Budget target, the rating agency said.
Despite a potential fiscal slippage in FY27, S&P expects India to stay committed to fiscal consolidation while maintaining infrastructure investments.
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Any erosion of commitment to reduce fiscal deficit and public debt, or a materially slower economic growth could push India’s ratings lower, S&P said. S&P may raise the ratings if fiscal deficits narrow meaningfully such that the net change in general government debt falls below 6% of GDP on a structural basis.
Another global ratings agency, Fitch, earlier this month kept India’s sovereign rating at ‘BBB-‘, citing robust growth amidst weak fiscal metrics. S&P had upgraded India to ‘BBB’ from ‘BBB-’last year, while Moody’s Ratings has kept a ‘Baa3’ rating on the country since June 2020.
S&P also affirmed the ‘A-2’ short-term sovereign credit rating on India, and kept the outlook on the long-term rating as stable.
“The stable outlook reflects our view that continued policy stability and high infrastructure investment will support India’s long-term growth prospects,” S&P said. “That, along with stable fiscal and monetary policies that moderate the government’s elevated debt and interest burden, will underpin the rating over the next 24 months,” the rating agency said.
S&P projects India’s GDP growth to slow down to 6.6% in the current financial year from 7.7% in FY26, S&P said. However, solid consumer and public investment dynamics will propel GDP growth to average 7.0% over the next three financial years, S&P said.
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“These growth rates place India substantially above sovereign peers at similar income levels and should continue to underpin fiscal revenue increase,” the rating agency said.
S&P’s growth forecast for FY27 is a tad lower than the Reserve Bank of India’s 6.7% projection. The Indian economy grew 7.8% in the January-March quarter and April-June is seen at a four-quarter low of 7.2%, according to an FE poll.
Lower rainfall from El Nino and volatile input costs driven by the West Asia war will hurt India’s rural economy, S&P said. But services, infrastructure investment, and manufacturing will cushion the impact of weak monsoons, the rating agency said.
India will maintain its strong external position with modest current account deficits (CAD) over the next three years, S&P said. The CAD is seen rising to 1.6% of GDP in FY27 but then slowly moderate to below 1% over the next three years.
India faces near-term price pressures from high energy and food prices but S&P expects inflation to stay within the RBI’s 2-6% target range over the next three years. For FY27, S&P sees consumer price inflation rising to 5.1% in FY27 from 2.1% last year. CPI inflation was at a 19-month high of 4.45% in July.
WEAK FISCAL METRICS
India’s fiscal settings have been the weakest part of its sovereign ratings profile, S&P said. The government has been lowering its fiscal deficit over the last few years, bringing it to 4.4% in FY26 from a high of 9.2% in the pandemic-hit year of FY21.
For the current financial year, the government set a fiscal deficit target of 4.3% of GDP in the Union Budget. “However, we expect the impact of an excise duty reduction on fuel along with a potentially higher fertilizer subsidy bill to weigh marginally on the fiscal deficit this year,” S&P said.
On a general government level, S&P sees a fiscal deficit of 7.3% of GDP in FY27, which is projected to decline to 6.6% by FY30.
TOPICSGlobal economyThis article was first uploaded on August twenty-seven, twenty twenty-six, at thirty-nine minutes past nine in the night. © The Indian Express (P) Ltd