S&P Global Ratings improved India’s economic outlook to “positive.”

Source: The post S&P Global Ratings improved India’s economic outlook to “positive.” has been created, based on the article “Robust performance: Sustained fiscal consolidation will improve ratings” published in “Business standard” on 31st May 2024.

UPSC Syllabus Topic: GS Paper 3- Economy-growth, and development

Context: The article discusses S&P Global Ratings improving India’s economic outlook to “positive” due to stable politics and good growth. It keeps India’s credit rating stable. It talks about future government tasks like enhancing tax systems to maintain economic growth.

Why did S&P Global Ratings improve India’s outlook?

1. S&P Global Ratings improved India’s outlook from “stable” to “positive.” This is the first outlook change since 2014.

2.The change was driven by political stability, economic reforms, and long-term growth prospects.

3. India’s economy grew over 7% last year and is expected to grow by 8%.
4. S&P expects continued growth momentum. Increased government spending on infrastructure is also seen as a driver for sustained economic development.
5. Despite fiscal consolidation efforts, the fiscal position remains a concern.

What are the fiscal challenges?

1. Fiscal Deficit: The fiscal deficit is projected to drop from 7.9% of GDP to 6.8% by 2027-28, but this remains high.
2. Debt Levels: The debt-to-GDP ratio will stay elevated, not falling below 80% by 2027-28.
3. Government Spending: Post-pandemic growth has been driven by government capital expenditure, which may be challenging to maintain alongside fiscal consolidation goals.

What should the next government focus on?

1.Investment Promotion: The next government should push for investment to maintain growth momentum.

2.Fiscal Deficit Reduction: Focus on reducing the fiscal deficit from 5.1% closer to the target of 4.5%.

3.Revenue Collection: Improve the GST system by rationalizing rates and slabs to boost revenue.

4.Tax Reforms: Reassess direct tax reforms and enhance tax administration.

5.Utilize RBI Surplus: Use the higher-than-expected surplus transfer from the RBI to ease fiscal pressure.

6.Sustainable Growth: Balance between sustaining government capital expenditure and achieving fiscal consolidation goals.

Question for practice:

Examine the factors leading to S&P Global Ratings’ improvement of India’s economic outlook from “stable” to “positive”.