India could see a rating upgrade by the Financial Year 2027, synchronous with the tag of the 3rd largest economy, said the State Bank of India research report on Wednesday.
The growth, as per the SBI report, is riding on the assumption that the S&P may raise the ratings if India’s fiscal deficits narrow meaningfully general government debt falls below 7% of GDP on a structural basis.
Notably, earlier in the day, the S&P Global Ratings retained India’s sovereign rating at ‘BBB -’ but raised its outlook to ‘positive’ from ‘stable’.
Last time the agency upgraded the rating outlook was in 2010 when it shifted from negative to stable. India’s robust economic expansion is having a constructive impact on its credit metrics.
The riders of the growth projection
As per the SBI report, if current account deficits widen materially to weaken India’s external position such that the country becomes a narrow net external debtor, S&P could also revise the outlook to stable .
Projections show that under usual trends and accounting for RBI surplus, general government fiscal deficit will fall below 7 % in FY27.
The external debt stabilizing CAD ignoring valuation changes is estimated under current trends at 1.15%.
It highlighted that the new investment announcements touches Rs 36.92 lakh crore in FY24 as compared to Rs 37.06 lakh crore in FY23. The spike in the investments reflect robust demand in economy.
Further it highlighted that the major contribution from private sector suggesting revival of capex cycle.
In the Financial Year 2024, the new company registered touched 1.85 lakh as compared to 0.64 lakh in FY15.
Further, it said that the per day registration jumped around 3x to 617 in FY24 as compared to around 214 in FY15.
The two risks
The SBI report highlighted that the deterioration in the Russia-Ukraine war or the conflict in the Middle East likely poses the most risk to stable sovereign outlooks in Asia-Pacific.
Another risk that the report highlighted is the worsening US-China tensions.
