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India’s rating upgrade possible in next 24 months: S&P

A sovereign rating upgrade for India within the next 24 months is possible if the central government successfully manages its finances and reduces the fiscal deficit to 4 per cent of GDP, according to an S&P Global Ratings official.

YeeFarn Phua, Director of Sovereign Ratings at S&P Global Ratings, stated that an upgrade would be triggered if the general government (comprising the Centre and states) deficit falls below 7 per cent of GDP, primarily driven by the central government.

“If the central government is able to bring down the fiscal deficit to 4 per cent of GDP, we will consider a rating upgrade over the next 24 months,” Phua said.

The central government aims to reduce the fiscal deficit to 5.1 per cent of GDP in the current fiscal year, down from 5.63 per cent in 2023-24. According to the fiscal consolidation roadmap, the deficit – the difference between government expenditure and revenue – will be reduced to 4.5 per cent by 2025-26.

In May, the US-based rating agency upgraded India’s outlook to positive from stable while retaining the rating at ‘BBB-‘.

Phua also noted that the Indian economy has averaged 8 per cent growth over the past three years, driven by domestic consumption and infrastructure investment that has made a tangible difference.

“We see the medium-term growth potential for India at 7 per cent,” Phua said.

If infrastructure bottlenecks are addressed, India could achieve 8 per cent growth potential without the risk of overheating, he added.

S&P estimates India’s economic growth at 6.8 per cent for the current fiscal year, lower than the 8.2 per cent growth recorded in the last fiscal year.

Louis Kuijs, Chief Economist for Asia-Pacific at S&P Global Ratings, mentioned that India is the fastest-growing economy in the Asia region.

“The impact of Covid on Asian economies is behind us, and growth is picking up steam,” he said.

“We noticed that Covid had a significant impact on growth trajectories, particularly in countries like India. India is now recouping some of the lost ground and growing faster than we had expected four years ago,” Kuijs added.

(With PTI inputs)

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