India on the Brink of Sovereign Rating Upgrade Amid Strong Fiscal Growth

A German brokerage predicts that stronger growth and a narrower fiscal deficit could lead to a sovereign rating upgrade for India. The government's commitments to reduce the fiscal deficit look more credible, thanks to higher dividends from the RBI. Real GDP growth is also expected to remain robust.

India could be on the verge of a sovereign rating upgrade, driven by robust growth and a narrower fiscal deficit, according to a German brokerage report released on Monday.

Analysts at Deutsche Bank highlighted the government's fiscal deficit commitments, projecting a reduction to 5.1 percent in FY25 and further down to 4.5 percent in FY26. The fiscal deficit was 5.6 percent in FY24, better than the budgeted 5.8 percent, thanks to a significant dividend announcement by the Reserve Bank of India (RBI).

Real GDP growth is forecast to reach 6.9 percent in FY25 before slightly decreasing to 6.5 percent in FY26. The analysts noted that the pace of fiscal consolidation could result in a quicker-than-anticipated sovereign rating upgrade, especially after global rating agency S&P recently revised India's outlook to 'positive.'