S&P upgrades India's outlook to positive citing robust growth, government spendings

"Our 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. We believe these factors are coalescing to benefit credit metrics," the rating agency said in a statement.

The rating agency said India's robust economic expansion is having a constructive impact on its credit metrics. It expects sound economic fundamentals to underpin the growth momentum over the next two to three years. "The composition of government spending has been transformed, with an increasing share going to infrastructure," it asserted, noting that it will ease bottlenecks and put the country on a higher growth trajectory.

The quality of government spending has improved in the past four to five years, as the PM Modi-led administration has increasingly shifted budget allocation to infrastructure spending.For 2024-25, the government is set to spend on capital expenditure at Rs 11 trillion, or about 3.4 per cent of GDP. This is almost 4.5x from a decade before, it said.

Affirming a positive outlook, it said that continued policy stability, deepening economic reforms, and high infrastructure investment will sustain long-term growth prospects.

However, on the contrary, elevated fiscal deficits, a large debt stock and an interest burden persist, but the government is prioritising ongoing consolidation efforts, it noted.

It may raise the ratings if India's fiscal deficits narrow meaningfully such that the net change in general government debt falls below 7 per cent of GDP on a structural basis, S&P Global Ratings said.

If India can shrink the fiscal deficit significantly, rating support will strengthen over time.

"We may also raise the ratings if we observe a sustained and substantial improvement in the central bank's monetary policy effectiveness and credibility, such that inflation is managed at a durably lower rate over time," said the rating agency.

Retail inflation clocked 4.83 per cent in April 2024, the lowest in the past 11 months. The retail inflation in India, though, is in RBI's 2-6 per cent comfort level but is above the ideal 4 per cent scenario.

Inflation has been a concern for many countries, including advanced economies, but India has largely managed to steer its inflation trajectory quite well, the rating agency said.

On the downside, it could revise the outlook to stable if it observes an erosion of political commitment to maintain sustainable public finances.

The Indian economy has staged a remarkable comeback from the COVID-19 pandemic.

S&P estimated real GDP growth in the past three years to have averaged 8.1 per cent annually, the highest in the Asia-Pacific region.

"We expect these growth dynamics to continue to play out in the medium term, with GDP expanding close to 7.0 per cent annually over the next three years."

The total size of the Indian economy is now estimated to be 46% larger (in rupee terms) than it was pre-COVID.

India's GDP grew at a massive 8.4 per cent during the October-December quarter of the financial year 2023-24, and the country continued to remain the fastest-growing major economy. India's economy grew 7.2 per cent in 2022-23 and 8.7 per cent in 2021-22, respectively.

Fourth quarter data is expected later this week.

India's economy grew 7.2 per cent in 2022-23 and 8.7 per cent in 2021-22, respectively.

The size of India's GDP is currently ranked 5th, after the US, China, Germany, and Japan. It overtook the UK in 2022.

Just a decade ago, Indian GDP was the eleventh largest in the world. Currently, India's GDP is estimated to be around USD 3.7 trillion.

Citing various macroeconomic parameters that are doing pretty well, India's G20 Sherpa and former CEO of Niti Aayog Amitabh Kant projected that the country is all set to overtake Japan as the 4th largest economy in the world by 2025. (ANI)