India's rating upgrade possible in next 24 months if fiscal deficit falls to 4%: S&P

A sovereign rating upgrade for India in the next 24 months is possible if the central government is able to prudently manage its finances and bring down fiscal deficit to 4% of GDP, an S&P Global Ratings official said on July 3.

A sovereign rating upgrade for India in the next 24 months is possible if the central government is able to prudently manage its finances and bring down fiscal deficit to 4% of GDP, an S&P Global Ratings official said on July 3.

S&P Global Ratings Director, Sovereign Ratings, YeeFarn Phua, said the trigger for upgrade would be general government (Centre + states) deficit falling below 7% of the GDP, and a lot of this would have to be driven by the central government.

“If the central government is able to bring down fiscal deficit to 4% of the GDP, we will consider a rating upgrade over the next 24 months,” Mr. Phua said.

The central government estimates to bring down fiscal deficit to 5.1% of the GDP in the current fiscal, from 5.63% in 2023-24.

As per the fiscal consolidation roadmap, the deficit — the difference between government expenditure and revenue — will be brought down to 4.5% by 2025-26.

The U.S.-based rating agency had in May upgraded outlook for India to positive, from stable, while retaining the rating at ‘BBB-’.

Phua further said the Indian economy has clocked an average of 8% growth in the last three years, driven by domestic consumption and infrastructure investment that has made real difference on the ground.