S&P Global Ratings Upgrades India's Economic Outlook to Positive - S&P Global Ratings has upgraded its outlook for India's economy from 'stable' to 'positive' while maintaining its overall rating at 'BBB-', the lowest investment grade rating. This decision is based on India's strong economic growth and better quality of government spending.

The last time S&P upgraded India's rating outlook was in 2010, moving it from 'negative' to 'stable'. According to S&P, India's robust economic growth positively impacts its credit metrics, despite a high fiscal deficit. The agency expects India's strong economic fundamentals to sustain growth over the next two to three years.

Fiscal Deficit and Government Plans
S&P indicated that India's rating could be upgraded if the fiscal deficit significantly narrows. Finance Minister Nirmala Sitharaman announced in the interim budget that the government aims to reduce the fiscal deficit from 5.8% of GDP in FY24 to 5.1% in FY25. The goal is to bring the deficit down to 4.5% of GDP by FY26.

Recent dividends from the Reserve Bank of India, amounting to Rs 2.11 lakh crore, could also aid in improving India's sovereign rating. Experts believe this dividend boost will provide an additional 0.4% of GDP space for the government.

Infrastructure Investment and Economic Growth
S&P praised India's ongoing investment in infrastructure, stating that it will enhance economic growth. The agency believes that, combined with fiscal adjustments, this could alleviate India's weak public finances. An improvement in the central bank's monetary policy effectiveness and credibility, leading to lower and more stable inflation, could also result in a rating upgrade.

Political Stability and Reform Continuity
S&P expects India's reform momentum to continue regardless of the outcome of the ongoing 18th Lok Sabha elections. Prime Minister Narendra Modi is widely anticipated to secure a third consecutive term in office, with the results expected by June 4.

In May of the previous year, S&P affirmed India's sovereign rating at 'BBB-' with a stable outlook, highlighting growth but also pointing out risks related to weak fiscal performance and low GDP per capita. Until now, all three major global rating agencies—Fitch, S&P, and Moody's—had the lowest investment grade rating on India with a stable outlook.

The ratings provided by these agencies are crucial for investors as they serve as indicators of a country's creditworthiness and influence borrowing costs.

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