S&P to watch government policies for next 2 years before taking call on India's rating upgrade

S&P expects India's new government to maintain pro-growth policies and fiscal consolidation, monitoring for potential rating upgrade.

S&P Global Ratings on Friday said it will watch the fiscal numbers for the next 1-2 years, besides pro-growth policies of the new government, before deciding on India's sovereign rating upgrade.

S&P, which earlier this week upgraded India's outlook to positive while retaining the sovereign rating at BBB-, expects the new government to continue with pro-growth policies, infrastructure investment and commitment to fiscal consolidation.

"Within the next 2 years we will be closely observing whether the government's depiction of fiscal consolidation path will carry on... We will be observing for the next 1-2 years to see how this fiscal numbers will come to pass and if so, this will lead to a rating upgrade," S&P Global Ratings Analyst YeeFarn Phua said in a webinar.

BBB- is the lowest investment grade rating.

As per the consolidation roadmap, the fiscal deficit, which is the difference between government's expenditure and revenue, will come down to 4.5 per cent of GDP by March 2026, from an estimated 5.1% at the end of March 2025.

Mr. Phua said once the impact of high infrastructure investment is realised and bottlenecks are removed, India's long-term growth potential could be 8%.

He said India has enjoyed a consistently high GDP growth rate despite being governed by different parties and coalitions since the economic liberalisation in 1991.