Unveiled: Modi’s Third Term and S&P’s Bold Rating Outlook

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India’s Rating Outlook Soars: S&P Global Predicts Economic Brilliance

Narendra Modi

Economic Triumphs Propel India’s Rating Outlook

India has leaped forward in the global ratings game, with S&P Global Ratings painting a rosy picture by upgrading its sovereign rating outlook to “positive” from “stable.” Maintaining its rating at “BBB-,” S&P has signaled its belief in India’s robust economic expansion, which is working wonders for the country’s credit metrics.

“We anticipate sound economic fundamentals to anchor India’s growth momentum in the next two to three years,” declared S&P, emphasizing its unwavering expectations for consistent economic reforms and fiscal policies, regardless of the upcoming election results.

Robust Growth Sets the Stage

As the world’s largest electoral marathon, India’s six-week national election reaches its climax, with votes set to be tallied on June 4. Investors are confidently anticipating Prime Minister Narendra Modi’s bid for a third term in office. Finance Minister Nirmala Sitharaman hailed the upgrade as a “welcome development,” echoing its testament to India’s solid growth and promising economic trajectory.

S&P’s positive outlook finds its footing in India’s remarkable economic growth, significant progress in government spending quality, and a commitment to fiscal prudence. “We recognize that these factors are coalescing to yield favorable credit metrics,” S&P analysts affirmed.

Reforms Yield Fiscal Stability

Despite past vulnerabilities in India’s fiscal setup, the government is prioritizing ongoing consolidation efforts. “With economic recovery on solid ground, India is painting a clearer (albeit gradual) path to fiscal consolidation,” noted S&P analysts. Projections anticipate a steady decline in the general government deficit from 7.9% of GDP in 2025 to 6.8% by 2028.

Undeterred by high fiscal deficits, S&P forecasts India’s GDP to balloon by nearly 7% annually over the next three years. This robust growth, coupled with a favorable interest rate differential, will ensure India’s borrowing remains sustainable, reducing its debt-to-GDP ratio from 85% to 81% by 2028.

Monetary Policy and Inflationary Trends

Easing monetary policy is predicted before the end of 2025, fueled by a consistent easing in inflation, creating a crucial turning point for India’s central bank. The agency affirmed that India’s ratings could soar if fiscal deficits markedly narrow, bringing government debt below 7% of GDP, or if the central bank’s effectiveness and credibility in maintaining inflation levels receive a sustained boost.

A stable outlook from S&P could materialize if the government wavers in its commitment to sustainable public finances or if current account deficits widen excessively, potentially compromising India’s external position.

Enthusiastic Engagements

“We will continue to engage proactively, sharing the story of India’s economic vitality and the potential for an upgrade,” affirmed Economic Affairs Secretary Ajay Seth. India’s upward trajectory is a testament to the power of economic reform and is a beacon of hope within the global economic landscape.

Data sourced from: cnbc.com