Global rating agency S&P on Tuesday said India’s budget remains in line with its expectation of gradual fiscal consolidation, underscoring its positive outlook for the country’s sovereign credit rating.
In the Budget presented on February 1, the central government lowered its fiscal deficit estimate for 2024-25 to 4.8% of GDP from 4.9%. It also budgeted a 4.4% deficit for 2025-26. These targets are broadly consistent with S&P’s projections.
“We believe India (BBB-/Positive) will hit its deficit targets despite revenue loss from lifting the threshold for minimum taxable income and slower economic growth. Support will stem from continued large dividends from the central bank and potential capital underspending,” it said.
The Centre has budgeted a large Rs 2.56 lakh crore in dividends from the Reserve Bank of India (RBI), nationalised banks and financial institutions in FY26, the bulk if this would come from the RBI. In FY25, the RBI had paid a whopping Rs 2.1 lakh crore dividend.
S&P said India differs from most regional and global peers in that its state governments also run persistently high deficits.
“In our assessment, aggregate state shortfalls could be 2.8%-2.7% of GDP over the next three years. Combined with central government deficits that may trend down to 4.2% of GDP by fiscal 2028, the general government fiscal deficit could gradually decrease to 6.8% of GDP from 7.8% in fiscal 2025.”
The FY26 budget will boost growth over the next few years via domestic demand through tax cuts for households, it said.
The Centre sharply raised the income tax exemption limit to Rs 12 lakh from Rs 7 lakh in the new tax regime, which the government said would leave around Rs 1 lakh crore cash in the hands of taxpayers.
The government remains focused on investment-led growth and agriculture sector reforms.
Economic expansion in India is normalizing toward a more sustainable level after real growth averaged 8.3% over fiscal 2022-2024 post-pandemic, it said.
“We anticipate consumer spending and public investments will maintain real GDP growth at 6.7% in fiscal 2025 and 6.8% in fiscal 2026.”
These growth rates continue to place India above sovereign peers at similar income levels and should continue to support fiscal revenue increase despite the income tax cuts,
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