Lakshmana Venkat Kuchi
Credit rating agency S&P Global on Thursday upgraded India on the basis of its robust economic expansion and sound fundamentals.
In its latest report , the agency said that India will not have any major fallout of Trump Tariffs as its impact on Indian economy would be marginal given the fact that India’s economic growth is based on its domestic consumption.
Raising the long-term credit rating on India from “BBB- to BBB” and short term ratings to A2 from A3, the agony said outlook on the long-term rating was stable.
Citing the reasons for this upgrade, it said,“India is prioritising fiscal consolidation, demonstrating the government’s political commitment to deliver sustainable public finances, while maintaining its strong infrastructure drive.”
It also said that the country’s robust economic expansion is having a constrictive effect on India’s credit metrics and added, “we expect sound economic fundamentals to underpin growth momentum over the next two to three years.
In addition, monetary policy settings have become increasingly conducive to managing inflationary expectations, the agency said in its report released on Thursday.
Continued policy stability and high infrastructure investment will support India’s long-term growth prospects, the agency said.
India remains among the best performing economies in the world, the agency said and added that it staged a remarkable comeback from the pandemic with real GDP growth over fiscal 2022 (year-end March 31) to fiscal 2024 averaging 8.8%, the highest in Asia-Pacific.
“We expect these growth dynamics to continue in the medium term, with GDP increasing 6.8% annually over the next three years. This has a moderating effect on the ratio of government debt to GDP despite still-wide fiscal deficits,” the agency said.
It also predicted that India would be able to manage the impact of the US tariffs and said that India was relatively less reliant on trade and about 60 per cent of its economic growth stemmed from its own domestic consumption.
“Though the U.S. is India’s largest trading partner, we do not expect the 50% tariffs (if imposed) to pose a material drag on growth. India’s exports to the U.S. constitute about 2% of GDP. Factoring in sectoral exemptions on pharmaceuticals and consumer electronics, the exposure of Indian exports subjected to tariffs is lower at 1.2% of GDP,” it said..
The agency said that even though tariffs may lead to a one off hit to growth, the overall impact would be marginal and will not affect India’ long-term growth prospects.
