India's rating upgrade hinges on sustainable fiscal consolidation, low inflation, S&P analyst says

MUMBAI, June 28 (Reuters) - S&P Global Ratings could consider an upgrade in Indias sovereign rating if the countrys fiscal metrics improve on a sustained basis and inflation is persistently lower, aided by monetary policy actions, an analyst at the agency said on Wednesday.

S&P in May affirmed its BBB- long-term and A-3 short-term, unsolicited foreign and local currency sovereign credit ratings on India, while retaining the outlook on the long-term rating at stable.

Currently, Indias rating remains constrained because of its weak fiscal performance, Nikita Anand, associate director, financial institutions ratings at S&P, said at a webinar.

The government aims to cut its fiscal deficit to 5.9% of gross domestic product by the end of the current financial year. Indias growth in the previous fiscal year ended on March 31 was 7.2%, one of the highest among big economies.

The Reserve Bank of India (RBI) projects the economy will grow 6.5% in FY24, while S&P expects average economic growth of 6.7% over the next few years.

The RBI will not be in a hurry to cut rates until inflation risks have fully ebbed, said Vishrut Rana, senior economist, Asia-Pacific at S&P.

Retail inflation in May was at an over two-year low of 4.25%, and fell within the central banks 2%-6% target band for the third straight month.

Earlier this month, the government held talks on the state of the economy with Moodys Investors Service and pitched for a ratings upgrade, Reuters reported, citing sources.

Meanwhile, Indian banks slippages have normalised and bad loans are well-covered by accelerated write offs, according to other analysts at S&P.

Banks loan growth momentum is also expected to be in-line with nominal gross domestic product growth in India, they said.

Reporting by Siddhi Nayak; Editing by Sonia Cheema