“We expect sound economic fundamentals to underpin the growth momentum over the next two to three years.Regardless of the election outcome we expect broad continuity in economic reforms and fiscal policies,” said S&P while explaining the rationale for the revision.
Companies can raise funds at competitive cost
Global ratings agency S&P said, “Our positive outlook on India is predicated on its robust economic growth, pronounced improvement in the quality of govt spending, and political commitment to fiscal consolidation. We believe these factors are coalescing to benefit credit metrics.”
Moody’s Investors Service (Baa3) and Fitch (BBB-) have a stable outlook for India and sovereign ratings at investment grade status. S&P had upgrade the outlook to stable from negative in 2010.Govt, which has made repeated arguments for a rating upgrade, appeared pleased with the change in outlook with FM Nirmala Sitharaman describing it as a welcome development.
“This reflects India’s solid growth performance and a promising economic outlook for the coming years. It has been possible due to the series of macroeconomic reforms undertaken since 2014, along with substantial outlay for capex, fiscal discipline, and decisive & visionary leadership. As envisioned by Hon’ble PM Shri @narendramodi, India is well on track to become the third-largest economy in the third term of govt and become a #ViksitBharat by 2047,” she tweeted.
The revision in the outlook comes as a shot in the arm for the BJP led govt which is widely expected to be re-elected in the ongoing national election – results for which will be announced on June 4. It will also help boost sentiment for an economy which has remained robust against the backdrop of geopolitical tensions and help companies to raise funds at competitive costs overseas.
S&P said the positive outlook reflects its expectation of policy stability, deepening economic reforms, and high infrastructure investment, which will sustain long-term growth prospects. “That, along with cautious fiscal and monetary policy that diminishes govt’s elevated debt and interest burden while bolstering economic resilience, could lead to a higher rating over the next 24 months,” the agency said. It said that it may raise the ratings if India’s fiscal deficits narrow meaningfully such that the net change in general government debt falls below 7% of GDP on a structural basis.
“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 RBI’s monetary policy effectiveness and credibility,, such that inflation is managed at a durably lower rate over time,” S&P said in a statement. It said the Indian economy has staged a remarkable comeback from the COVID-19 pandemic.