The ratings agency said India’s credit profile continues to be anchored by a dynamic and fast-growing economy, a strong external balance sheet and stable institutions that support policy predictability. These strengths are, however, counterbalanced by weak public finances, a burdensome debt stock and low per-capita income.
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S&P expects India’s economic growth to slow to 6.6% in the current fiscal year from 7.7% in fiscal 2026, weighed down by the energy shock, lower rainfall and higher food inflation. However, it forecast real GDP growth to average 7% annually over the next three fiscal years, supported by consumer demand, public investment and continued economic diversification.
The agency said the rural economy would be affected by lower rainfall linked to El Niño and volatile input costs arising from the Middle East war. But India’s increasing diversification towards services such as finance and technology, along with infrastructure investment and manufacturing, would act as stabilisers against the impact of weak monsoons.
On the fiscal front, S&P said India remained committed to gradual consolidation, although the Union government’s deficit could exceed its current budget target due to the impact of fuel excise duty cuts and a potentially higher fertiliser subsidy bill. It expects the general government fiscal deficit to decline from 7.3% of GDP in fiscal 2027 to 6.6% by fiscal 2030.
The ‘stable’ outlook reflects S&P’s expectation that policy stability and high infrastructure investment will support India’s long-term growth prospects, while stable fiscal and monetary policies gradually moderate the government’s elevated debt and interest burden over the next 24 months.Also read: India Inc revenue growth to moderate to 13-15 pc in Q2; margins to contract: Report
S&P said a downgrade could follow if the government’s commitment to fiscal consolidation weakened or if economic growth slowed materially on a structural basis, undermining fiscal sustainability. An upgrade, on the other hand, could be possible if fiscal deficits narrow meaningfully and the rise in government debt falls below 6% of GDP on a structural basis.
The agency also flagged India’s strong external position as a key support for its credit profile, even as volatile commodity prices and the Middle East conflict pose risks to its current account outlook. It expects inflation to remain within the Reserve Bank of India’s 2%-6% target range despite near-term pressure from food and energy prices.