Strong growth, external balance sheet make India an outlier in S Asia: S&P

India stands out on growth and its strong external balance sheet makes it an outlier among South Asian economies and contributes to its investment grade ratings, S&P Global said.

The ratings firm sees a lot of promise in India’s economic growth story even though the global economic growth outlook remains somewhat challenging, Andrew Wood, the director of sovereign and international public finance ratings for Asia-Pacific at the agency, said.

“Looking ahead, we could raise the rating if India’s fiscal deficit narrows meaningfully such that change in net general government debt falls below 7% of gross domestic product (GDP) on a structural basis,” Wood said at a webinar on the Asia-Pacific region.

“India is a net external creditor economy, which is a core support for its investment grade rating. We see a lot of promise in India’s economic growth story even in a somewhat challenging global economic growth outlook,” Wood added.

The budget for fiscal 2025 announced last month had targeted a central government fiscal deficit of 4.9% of GDP, down from the 5.1% targeted earlier in the interim budget.

“This is good news at the margin; but combined with local government deficit, general government deficit is likely to remain above 7% of GDP at least for the current fiscal. So the trajectory for this metric over the next few years will remain an important one for the directionality of India’s ratings,” Wood said.

In May, S&P Global Ratings had raised India’s sovereign rating outlook to “positive” from “stable” on robust growth prospects over the next three years and public spending, and had raised hopes for an upgrade in two years if the government stayed on the reform track and continued with policies to keep the fiscal deficit in check.

While retaining the country’s sovereign rating at the lowest investment grade of ‘BBB-‘, S&P had said that it expected broad continuity in economic reforms and fiscal policies, irrespective of the election outcome.