Sovereign rating upgrade a shot in the arm for India

Hans India

2 days ago

There was good news for India on the economic front on the eve of its 79th Independence Day. The US-based S&P Global Ratings on Thursday upgraded India's sovereign rating to 'BBB' with a stable outlook from a junk investment grade of 'BBB'. This upward revision has come after nearly two decades with the last one being in January 2007.
This time around, S&P cited robust economic growth, political zeal for fiscal consolidation and effective monetary policy framework for taming inflation as the key reasons for its positive take on India and its economy. For the uninitiated, BBB is an investment grade rating that indicates improved credit metrics of a country to effectively meet its debt obligations. This higher rating means the Indian companies can raise funds and loans from the international market at a lower cost; so will the government. Ironically, the rating upgrade has come from a US-based agency at a time when India is staring at an uncertain path when it comes to its growing trade with the US.
For some inexplicable reasons, the maverick US President Donald Trump slapped 25 per cent import duties on Indian goods from August 7 before doubling it to 50 per cent, which will come into effect on August 27. Warning of more tariffs, Trump called India a 'dead economy'. But the S&P's latest take proves that Trump's harsh comments are far from the truth, vis-à-vis the Indian economy, which is among the world's best performing economies. 'The quality of government spending has improved in the past five to six years,' the rating agency stated. It added that the US tariffs will not have a material impact on the economy as the country's growth story is largely driven by domestic consumption.
Quite expectedly, the Union Finance Ministry welcomed the much-awaited rating upgrade, and said economic policies pursued by the Narendra Modi government helped India get the higher rating. Experts opine that India would continue its growth momentum in the coming years. The Indian government has been trying for its sovereign rating revision for quite some time. Vexed with the attitude of US-based rating agencies and their dominance globally, India and other members of BRICS bloc even contemplated floating their own credit rating agency. But that idea didn't fructify due to various reasons.
But India needs to do a lot more on the structural reforms front to put its economy on a higher growth path and secure a much higher sovereign rating. Higher economic growth is essential for it to become the world's third largest economy in the next few years. Currently, India shares 'BBB' rating with Indonesia while Germany and Singapore top the list with AAA rating followed by US (AA+), UK and South Korea (AA), France (AA-), China (A+) and Malaysia (A-). When it comes to rating from other agencies, Moody's rated India at Baa3, while Fitch gave 'BBB'.
Recently, DBRS, a Canada-based rating agency, upgraded India to 'BBB'. However, India must achieve a lot more on the economic front to move up on the rating scale. But for the time being, S&P's rating upgrade is a shot in the arm for the country, which can use it as a platform to enhance its global image and consolidate its economy amid global trade wars unleashed by the US President and geopolitical uncertainties in the wake of the long-lasting Russia-Ukraine war and rising conflicts in the Middle East