'Sound fundamentals to underpin growth': S&P affirms India's sovereign rating at 'BBB-' with stable outlook

Global rating agency S&P Global Ratings on Thursday retained India's sovereign credit rating and said the country's economy is performing well and sound fundamentals will underpin its growth over the next two to three years. This comes just a week after Fitch affirmed India's rating at 'BBB-' with a stable outlook.

S&P affirmed its 'BBB-' long-term and 'A-3' short-term, unsolicited foreign and local currency sovereign credit ratings while retaining the outlook on the long-term rating at stable.

"The stable rating outlook reflects our expectation that India's sound economic fundamentals will be sufficient to offset the government's weak fiscal performance, helping to sustain elevated government funding needs and a high-interest burden over the next 24 months," analysts wrote.

S&P expects India's economy to grow by about 6 per cent in 2023-24, with investments and consumer momentum helping growth prospects over the next few years.

Although India's public finances remain weak, strong growth in capital expenditure (capex) allocations boosts the quality of the government's fiscal programs, S&P said. "More effective capex programs should help alleviate India's widespread shortfall in physical infrastructure capacity. Over time, this would support the productive capacity of the economy," it added.

The rating agency said despite strong revenue gains, fiscal consolidation in India has trailed regional peers at a similar rating level. But it expects the central government to gradually pare down its sizable deficits over the next few years, to about 7.3 per cent of GDP by fiscal 2027.

S&P said it forecasts overall net general government debt stabilising just below 85 per cent of GDP over the next three years, which would be higher than the pre-pandemic level of 75 per cent of GDP, but well below the pandemic peak of over 90 per cent.

Earlier this month, New-York based Fitch said India's rating reflected strengths from a robust growth outlook compared with peers and resilient external finances, which had supported India in navigating the large external shocks over the past year. The rating agency forecasts the country to be one of the fastest-growing rated sovereigns globally at 6 per cent in the current fiscal year ending March 2024. 

(With inputs from Reuters)