S&P Global Optimistic About India's Economic Outlook Post 2025-26 Budget Projects 6.8 Growth

(MENAFN- KNN India) New Delhi, Feb 5 (KNN) S&P Global Ratings has expressed optimism about India's economic trajectory following the 2025-26 Budget announcement, citing income tax reductions for households as a key driver of domestic demand growth.

In its latest assessment released on February 4, 2025, the rating agency marginally lowered its growth forecast for 2024-25 to 6.7 per cent from 6.8 per cent, while raising its 2025-26 projection to 6.8 per cent from 6.7 per cent.

The agency maintains confidence in India's ability to achieve its fiscal deficit targets of 4.8 per cent of GDP for the current year and 4.4 per cent for 2025-26, despite potential revenue impacts from tax concessions and moderated economic growth.

These shortfalls could be offset by substantial central bank dividend payments and possible capital expenditure adjustments, according to S&P Global.

The firm emphasized that India's projected growth rates remain superior to sovereign peers at comparable income levels, supporting sustained fiscal revenue despite the tax relief measures.

The rating agency's positive outlook on India's sovereign credit ratings remains unchanged, supported by the Budget's alignment with expected gradual fiscal consolidation.

However, S&P Global expressed reservations about the government's planned transition from fiscal deficit to debt-to-GDP ratio as the primary fiscal anchor starting 2026-27.

The government has established a target to achieve a debt-to-GDP ratio of 50 per cent (with a one percent margin) over the five-year period from 2026-27 to 2030-31, down from an estimated 56.1 per cent in 2025-26.

S&P Global emphasized that rating upgrades would depend on significant reduction in fiscal deficits, specifically requiring the net change in general government debt to fall below 7 per cent of GDP on a structural basis.

While the new debt-to-GDP approach might enhance fiscal flexibility, the agency cautioned that India's high government interest servicing to revenue ratio could limit improvements in its debt burden assessment.

Regarding capital expenditure, S&P Global views the slower growth in investments for the upcoming year as a temporary phenomenon rather than a deterioration in spending quality.

While capital expenditure remains steady at 3.1 per cent of GDP for 2025-26, the 10 per cent annual increase represents a moderation from the previous three years' average growth of 23 per cent.

The agency anticipates improved infrastructure project execution following the resolution of supply chain constraints and the conclusion of general elections.

Finance Minister Nirmala Sitharaman has defended the shift to a debt-to-GDP approach, suggesting it would provide the government greater operational flexibility to address unexpected challenges while maintaining transparency in debt management.

This strategic change was outlined in the fiscal policy statement submitted to Parliament under the Fiscal Responsibility and Budget Management Act of 2003.

(KNN Bureau)

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