S&P Upgrades India's Rating to BBB, First Time in 18 Years

S&P Global Ratings has elevated India’s long-term sovereign rating from ‘BBB-’ to ‘BBB’, marking the first upgrade for the country in 18 years. This comes in recognition of India’s buoyant economic growth, strengthened monetary policy, and ongoing fiscal consolidation efforts. The upgrade follows S&P’s move in May 2024 to revise India’s rating outlook to positive.

Economic Strength and Policy Credibility

"The upgrade of India reflects its buoyant economic growth, against the backdrop of an enhanced monetary policy environment that anchors inflationary expectations," S&P said, as per news reports. Real GDP growth averaged 8.8% between fiscal 2022 and 2024, the highest rate in Asia-Pacific. 

S&P predicts that India's economy will see a 6.8% annual growth over the next 3 years. This growth should help to stabilise the country's debt-to-GDP ratio, even though fiscal deficits are expected to remain large. The agency expects that new US tariffs will have a minimal effect on India, as the country's economy is not heavily reliant on international trade and is driven by strong domestic demand.

Fiscal Reforms, Market Reaction, and Risks

In response, the finance ministry welcomed S&P’s decision, stating India will continue its buoyant growth momentum and undertake steps for further reforms to become a developed economy by 2047. S&P raised its transfer and convertibility assessment to ‘A-’ from ‘BBB+’, pointing to improved external resilience, as per reports.

Sustainability, Future Upgrades and Agency Response

S&P projects India’s debt-to-GDP ratio will fall from 83% in fiscal 2025 to 78% by fiscal 2029, noting possible risks such as weakened political commitment to fiscal consolidation or slower economic growth. 

Additional upgrades are possible, according to the agency, if fiscal deficits are reduced enough to consistently keep the government's net debt increase below 6% of GDP. India's Economic Affairs Secretary, Anuradha Thakur, believes other rating agencies will recognise the reasons for the upgrade and follow suit.

Also Read: CAG Highlights ₹3.17 Lakh Crore Losses, Idle Funds and Fiscal Lapses in FY23 Audit

Conclusion

With its improved sovereign rating, India stands out for its resilient economic fundamentals and targeted policy reforms. The recognition from S&P may set the stage for further upgrades as growth continues and fiscal discipline holds, reinforcing India’s position in global financial markets.

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