India Leads South Asian Economies In Growth And External Indicators, Says S&P
The trajectory of the government's fiscal deficit will be crucial in determining the future direction of India’s sovereign ratings.
India excels in both growth and external factors compared to other South Asian countries, S&P Global Ratings said.
Andrew Wood, director of sovereign and international public finance ratings (Asia-Pacific) at S&P, noted that while the global economic outlook is challenging, India’s economic growth story shows significant promise.
The trajectory of the government's fiscal deficit will be crucial in determining the future direction of India’s sovereign ratings.
"We could raise the rating if India's fiscal deficit narrows meaningfully, such that change in net general government deficit falls below 7% of GDP on a structural basis," Wood said at a webinar on Asia-Pacific on Tuesday.
He said in the geography of South Asia, India stands out both on growth and external fronts. "India is a net external creditor economy, which is a core support for its investment grade rating. We see a lot of promise in India's economic growth story, even in a somewhat challenging global economic growth outlook," Wood added.
The budget for 2024-25 has announced targeting a central government fiscal deficit of 4.9% of GDP in the current fiscal, lower than the 5.1% targeted earlier.
"This is good news at the margin but combined with local government deficit, general government deficit is likely to remain above 7% of GDP at least for current fiscal. So, the trajectory for this metric over the next few years will remain an important one for the directionality of India's ratings," Wood said.
In May, S&P Global Ratings had upped India's sovereign rating outlook to 'positive' from 'stable' on robust growth prospects for the next three years and public spending, and raised hopes for an upgrade in two years, provided the government continues reforms and policies to keep fiscal deficit under check.
While retaining India's sovereign rating at the lowest investment grade of 'BBB-', S&P said that it expects broad continuity in economic reforms and fiscal policies, irrespective of the election outcome.
(With inputs from PTI)
