Standard & Poor Global Ratings on Wednesday revised its outlook on India to positive from stable on continued 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 the government’s elevated debt and interest burden while bolstering economic resilience, could lead to a higher rating over the next 24 months. The global rating agency forecasts India’s real GDP growth at 6.8 per cent in 2025 — which compares favourably with emerging market peers amid a broad global slowdown – with pub lic investment and consumer momentum underpinning solid growth prospects over the next three to four years. Irrespective of the June 2024 general election results, S&P expects the incoming government to carry on economic reforms to support the growth vigour, continued infrastructure investment drive and commitment to fiscal consolidation. Solid consumer and public investment dynamics will propel real GDP growth to 6.9 per cent in fiscal 2026 and 7.0 per cent in fiscal 2027. The S&P positive outlook on India is predicated on its robust economic growth, pronounced improvement in the quality of government spending, and political commitment to fiscal consolidation. These factors are coalescing to benefit credit metrics. The Indian economy has staged a remarkable comeback from the CO VID-19 pandemic and S&P estimate is that real GDP growth in the past three years to have averaged 8.1 per cent annually, the highest in the Asia-Pacific region. These growth dynamics are expected to continue to play out in the medium term, with GDP expanding close to 7.0 per cent annually over the next three years. This has a moderating effect on the ratio of government debt to GDP despite still-wide fiscal deficits. India’s weak fiscal settings had always been the most vulnerable part of its sovereign ratings profile. With economic recovery now well on track, the government is again able to depict a more concrete (albeit gradual) path to fiscal consolidation. The S&P projections indicate government deficit of 7.9 per cent of GDP in fiscal 2025 to slowly decline to 6.8 per cent by fiscal 2028. According to S&P, India is benefitting from strong consumer and investor sentiments heading into the general elections (April-June 2024). The recovery from its pandemic nadir has been impressive as it remains among the best performing emerging market economies in the world. The total size of the Indian economy is now estimated to be 46 per cent larger (in rupee terms) than it was pre-COVID. Three years of above-trend real GDP growth underscore this. That said, economic expansion is normalizing toward a more sustainable level. Fiscal 2025 will also be subject to comparison with a strong year-ago base. Surging capital expenditure (capex) by the Central Government and, to some extent, by state governments will help to spur investment and construction activities. Based on Budget plans for fiscal 2025 and S&Ps expectation of strong revenue growth, this support is likely to continue. Central government receipts are broadly on track, rising to INR 22.5 trillion in the first 11 months of fiscal 2024.
