S&P Global Ratings: Major new reforms in India may not take place until 2024 LS polls

Major new reforms may not take place in India until the general elections in 2024 are over, said S&P Global Ratings on Wednesday.

“Our expectation is that major new reforms in the country are probably unlikely right up to the election cycle and until the 2024 Parliamentary elections are over. Right after that reform momentum could pick up particularly if there is a very strong mandate for the next government,” said Andrew Wood, Director of S&P Global Ratings, during a webinar on Asia Pacific Sovereigns: Elections, Fuel Prices and Risks. 

The agency expects general government deficit to consolidate at about 8.9% of the GDP this fiscal year from about 10% last fiscal year despite any additional expenditure in the run up to the elections. “Even if we see a little bit of boost to expenditure in the run up to the elections, revenue growth also remains healthy in India. That has been supporting this gradual pace of fiscal consolidation we observe as well,” Wood said, when asked about the impact of elections on expenditure.

Responding to another question, Wood said the agency does not expect a change in India’s sovereign ratings for the next 12 to 24 months. “Regarding India’s ratings, the outlook remains stable. That suggests we don’t anticipate a change in the ratings over the next 12–24-monthperiod,” he said, adding that the agency would consider factors such as a significant improvement in fiscal deficit and inflation management for an upgrade in ratings.

“…what we would be looking for over time to contribute to stronger credit ratings construction for India would be a material improvement of the government’s fiscal performance which would entail a lower debt stock over a period of time and reduction of its interest burden and debt stock over a period of time. We are also interested in seeing over time if India’s management of inflation by the Reserve Bank of India continues to improve such that it may be an outperformer relative to peers at a similar level of development,” Wood said.

S&P had in May affirmed India’s sovereign ratings at ‘BBB-’ with a stable outlook. “The stable rating outlook reflects our expectation that India's sound economic fundamentals will be sufficient to offset the government's weak fiscal performance, helping to sustain elevated government funding needs and a high interest burden over the next 24 months,” it had said at the time. 

The agency expects the Indian economy to grow at 6% in the current fiscal year.