S&P Raises India's Economic Outlook, FM Sitharaman Credits Reforms and Leadership

S&P Global Ratings said, on Wednesday, that the country’s strong economic performance was positively affecting its credit metrics, and it upgraded India’s sovereign rating outlook from “stable” to “positive” while keeping the rating at “BBB-.”

Finance Minister Nirmala Sitharaman welcomed the change, stating that it “reflects the country’s solid growth performance and a promising economic outlook.”

Sitharaman continued by saying that it has become feasible because of the numerous macroeconomic changes implemented since 2014, as well as significant capital expenditures, strict budgetary controls and strong and “visionary leadership.”

Sitharaman declared on X (formerly Twitter) that India will become the “third-largest economy” in the world during the third term of the current government and establish Viksit Bharat by 2047.

Meanwhile, her comments came after the rating agency boosted India’s outlook to positive from stable after a 10-year gap, citing healthy growth projections for the next three years and increased public spending.

It stated that there is a chance for an upgrade as long as the government keeps up its reforms and initiatives to control the fiscal deficit.

S&P Ratings, however, retained India’s sovereign rating at the lowest investment grade of “BBB-” and stated that it anticipated substantial consistency in economic reforms and fiscal policy, regardless of election results.

With ballots due to be counted on June 4, the world’s longest national election, which lasted six weeks, is nearing its conclusion.

Amidst the improvement in outlook, the yield on the benchmark 10-year bond decreased by three basis points to 6.99%, and the Indian rupee recovered from its lowest points of the day.

According to S&P, India’s most vulnerable aspect of its sovereign ratings profile has always been its lax fiscal policies.

Significant fiscal deficits, a substantial debt load and interest costs continue, but the government is making continuous attempts at consolidation top priority, it continued.

The rating agency said it may choose to raise the country’s rating in the future if its budget deficits are greatly reduced and the net change in the total amount of government debt falls below 7% of GDP on a structural basis.

Furthermore, S&P reports that over the last three years, real GDP growth has averaged 8.1% yearly, the highest in the Asia-Pacific area.

According to current estimates, the nation’s GDP as a whole is 46% higher than what it was before COVID (in terms of rupees).