Global rating agency Standard and Poor's affirmed India's sovereign rating at "BBB-" and maintained a stable outlook on the gradual recovery in the economy.
India's recovery will gain pace through the second half of fiscal 2022 and into the following year, helping stabilise the country's overall credit profile, S&P said in a statement.
But it warned that the country's fiscal settings are weak, and deficits will remain elevated ahead even as the government undertakes some consolidation.
The country's strong external settings help buffer the risks associated with the government's high deficits and debt stock.
India's economy is gradually recovering from a deep contraction in fiscal 2021 (year ended March 31, 2021) and a subsequent severe second wave of Covid-19.
"We expect real GDP growth to rebound to 9.5% in fiscal 2022 on continued normalization of activity and progressively higher vaccination rates," the rating agency said.
The sovereign credit ratings on India reflect the economy's above-average long-term real GDP growth, sound external profile, and evolving monetary settings.
India's democratic institutions promote policy stability and compromise, and also underpin the ratings. These strengths are balanced against vulnerabilities stemming from the country's low per capita income and weak fiscal settings, including consistently elevated general government deficits, it added.
India's Bharatiya Janata Party (BJP)-led coalition government at Centre maintains strong support from the electorate. It's implementation of economic reforms will be key to sustaining India's healthy economic growth prospects.
While India's economy continues to outperform peers at a similar level of income on a 10-year weighted average real GDP per capita basis, its performance on this metric has weakened somewhat. Prior to the onset of the Covid-19 pandemic, the Indian economy had already slowed measurably.
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