S&P: India Stays on Fiscal Consolidation Path Despite Tax Cuts

Global ratings agency S&P believes India will remain on its fiscal consolidation path even after implementing income tax cuts in the Union Budget 2025-26. Despite concerns over revenue loss from raising the minimum taxable income threshold and slower economic growth, S&P expects the country to meet its fiscal deficit targets.

The budget, which focuses on stimulating domestic demand, is expected to support economic growth over the next few years. S&P anticipates that tax relief for households will boost consumer spending, while public investments will drive economic momentum. As a result, India’s real GDP growth is projected to be 6.7% in fiscal 2025 and 6.8% in fiscal 2026.

S&P also highlighted that a key factor for upgrading India’s sovereign credit rating would be a meaningful reduction in fiscal deficits. If the government successfully narrows its deficit while maintaining economic growth, it could strengthen India’s fiscal position in the long run.