'We May Raise Further If...': Global Ratings Agency's Big Note To India

NDTV

2 days ago

New Delhi:
Global ratings agency S&P has upgraded India's credit rating for the first time in nearly two decades, bumping the country from BBB to BBB- with a stable outlook, and invaliding United States President Donald Trump's eyebrow-raising 'India is a dead economy' remark.
The American financial services giant placed India "among the best-performing economies", praising it for averaging 8.8 per cent real GDP growth from FY22 to FY24, despite monetary uncertainty in a post-Covid world and significant geopolitical challenges arising from conflicts in Ukraine and West Asia.
The 8.8 per cent growth is the highest in the Asia-Pacific region.
The upgrade follows a May 2024 revision - to 'positive' - driven by robust growth and better quality of government spending, and reflects the government's continuing commitment to fiscal consolidation - i.e., reduction of the country's overall debt.
Risks include a weakening of political commitment to fiscal consolidation or a structural slowdown in economic growth that undermines debt sustainability, S&P said.
Fiscal consolidation is meant to keep the government by ensuring sustainable (and scalable) revenue streams and trimmed expenses, which, in turn, boost investor confidence and avoids an overall debt crisis, such as the one facing the United States that has lost its top AAA rating.
NDTV Explains | S&P Global Upgrades India Rating. What Does This Mean?
And India's rating could climb higher "if fiscal deficits narrow meaningfully, such that the net change in general government debt falls below 6 per cent of GDP on a structural basis", S&P Global Ratings Director YeeFam Phua told NDTV Profit Friday.
In February, while presenting yet another Union Budget, Finance Minister Nirmala Sitharaman indicated fiscal deficit would be cut from 4.8 per cent of GDP in FY25 to 4.4 per cent in FY26.
The target for FY25 had been earlier set at 4.9 per cent of GDP.
Mr Phua also said India needs to continue improving the quality of government spending and work on reducing subsidies, as well as improve monetary policy and inflation developments.
"The stable outlook rating reflects our view that continued policy stability and high infrastructure development will support India's long-term growth prospects. That, with cautious fiscal and monetary policy that moderates the government's elevated debt and interest burden, will underpin the rating over the next 24 months," he said.
Mr Phua also spoke about the economic elephant in the room - Trump's tariffs.
S&P On Trump Tariff Impact
The US President has slapped a 50 per cent duty on Indian imports into his country. Half was for India being what he called "a very big abuser of tariffs" and half for buying Russian crude oil.
The impact of these tariffs on India has been furiously debated.
Government sources told NDTV the impact of the 25 per cent trade tariff will be 'negligible', potentially affecting less than 0.2 per cent of GDP. And the impact of the 50 per cent will dissipate over the next two quarters, Chief Economic Advisor V Anantha Nageswaran said.
Mr Phua was slightly more pessimistic but was quite clear - the impact will be minimal as India's nation's exposure to the US in terms of exports to GDP is about two per cent.
"I don't think the tariffs imposed on India will have an impact in terms of economic growth, largely because India is not a very trade-oriented economy," he said.
"Over the longer term, we don't think this (higher tariffs) will be a big hit (on India's economy), and therefore, the positive outlook on India remains."
On the question of moving away from Russian crude - as demanded by Trump, despite Delhi calling out the West's double standards - S&P said this will have a modest impact given the narrow price differential between Russian crude and current international benchmarks.
However, this shift will have to be borne fully by the government.
What Are S&P Ratings?
S&P's ratings are based on five key factors, i.e., institutional, economic, external, financial, and monetary, and a BBB rating means India has 'adequate capacity to meet financial commitments, but (is) more subject to adverse economic conditions'.
A Delighted Government
The government has responded positively to S&P's bump.
The Government of India welcomes the decision by S&P Global Ratings to upgrade India's long-term sovereign credit rating to 'BBB' from 'BBB-' and its short-term rating to 'A-2' from 'A-3', with a Stable Outlook. S&P last upgraded India in January 2007 to 'BBB-', hence, this…
— Ministry of Finance (@FinMinIndia) August 14, 2025
The Finance Ministry said, "India has prioritised fiscal consolidate while maintaining its strong infrastructure creation drive and inclusive growth approach, that has led to the upgrade. India will continue its buoyant growth and undertake steps for further reforms to attain 'Viksit Bharat' by 2047."