S&P Global Ratings on Friday said it will watch the fiscal numbers for the next 1-2 years, besides pro-growth policies of the new government, before deciding on India's sovereign rating upgrade.

S&P, which earlier this week upgraded India's outlook to positive while retaining the sovereign rating at BBB-, expects the new government to continue with pro-growth policies, infrastructure investment and commitment to fiscal consolidation.

"Within the next 2 years we will be closely observing whether the government's depiction of fiscal consolidation path will carry on... We will be observing for the next 1-2 years to see how this fiscal numbers will come to pass and if so, this will lead to a rating upgrade," S&P Global Ratings Analyst YeeFarn Phua said in a webinar.

BBB- is the lowest investment grade rating.

As per the consolidation roadmap, the fiscal deficit, which is the difference between government's expenditure and revenue, will come down to 4.5 per cent of GDP by March 2026, from an estimated 5.1 per cent at the end of March 2025.

Phua said once the impact of high infrastructure investment is realised and bottlenecks are removed, India's long-term growth potential could be 8 per cent.

He said India has enjoyed a consistently high GDP growth rate despite being governed by different parties and coalitions since the economic liberalisation in 1991.

"This reflects national consensus on key economic policies. We do believe that post election this pro-growth policy will continue and political commitment of fiscal consolidation will carry on as well for coming years. No matter who the incoming government is, the pro-growth policies, sustained infrastructure investments, the drive to reduce fiscal deficit -- these things have produced very good outcomes and we believe that this will continue in the coming years no matter who is in charge," he said.

Results of the ongoing Lok Sabha elections will be announced on June 4.

Phua said he expects the general government (Centre + states) deficit to reduce to 6.8 per cent of GDP by 2028, from 7.9 per cent currently.

S&P Director (Asia Pacific Sovereign Ratings) Andrew Wood said India's fiscal performance remains relatively weak compared to some emerging market peers. Fiscal deficit of BBB rated sovereigns -- Malaysia, the Philippines, Indonesia, Thailand, Vietnam -- would be below 4 per cent this year, compared to 7.9 per cent in case of India.

However, in deciding India's sovereign rating, S&P also took into account change in net general government debt, as well as dynamics like health of economy, associated growth prospects, attractiveness of the debt that the government is selling and ability to finance deficits.

"We see that India's growth performance has been very strong over recent years and we expect it to be very strong in the near future. The quality of expenditure programme of India has improved remarkably over the past few years and that gives us more confidence that growth is going to be sustained at a higher rate in the future," Wood said.

While S&P sees India's fiscal deficit as high, it also anticipates more room for improvement going forward and that would be reflected in the rating, Wood added.

With regard to growth prospects, Phua said S&P expects India to grow at 6.8 per cent this fiscal but in next 2-3 years it is expecting around 7 per cent growth.

"We expect India's medium term growth potential to be around 7 per cent or so.... Once the infrastructure investments are in and connectivity improves, for India to grow at 8 per cent over the longer term is something that is quite possible," he said.

The above average growth has given India better economic assessment compared to peers of similar income levels, Phua said, adding S&P believes growth prospect remains strong and India's growth is sustainable at 7 per cent.

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