S&P Calls for India to Curtail Fiscal Deficit for Credit Rating Upgrade

S&P Calls for India to Curtail Fiscal Deficit for Credit Rating Upgrade

Asif Iqbal | December 16, 2023 | 09:26 PM IST | Breaking News | Follow on Google News

S&P Calls for India to Curtail Fiscal Deficit for Credit Rating Upgrade.image/AFP

S&P Calls for India to Curtail Fiscal Deficit for Credit Rating Upgrade

S&P Global Ratings emphasizes that India must notably reduce its fiscal deficit to qualify for a potential credit rating upgrade. Presently holding a ‘BBB-‘ rating with a stable outlook from S&P, India’s fiscal performance remains a key concern, falling short of benchmarks used for assessment, according to Kim Eng Tan, managing director for APAC sovereign ratings at S&P.

Aligning with S&P’s view, Moody’s Investors Service also anticipates a more restrained fiscal deficit compared to the current 4.5 percent of GDP. The Indian government aims to decrease the fiscal deficit to 5.9 percent of GDP for the ongoing fiscal year, further reducing it to 4.5 percent by 2025-26.

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However, clarity beyond this period remains uncertain, particularly due to the disruption caused by the Covid-19 pandemic, which prompted a pause on the original 3 percent deficit target.Forecasts project an increase in the fiscal deficits of Indian states, a factor that influences assessments by rating agencies. Despite fiscal challenges, India’s GDP is expected to grow by 6.4 percent in 2023-24.

This economic growth, coupled with strengths like a robust domestic bond market, monetary credibility, and a strong external balance sheet, is acknowledged.Kim Eng Tan suggests the possibility of a credit rating upgrade if India demonstrates substantial fiscal improvement.

Despite fiscal vulnerabilities, India has exhibited robust GDP growth, positioning itself to become the world’s third-largest economy by 2030, boasting the fastest growth among major economies over the next three years. These factors offer hope for a potential credit rating upgrade in the future.

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Asif Iqbal

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