S&P Global upgrades India investment rating: What about the Trump tariff effect?

Hindustan Times

2 days ago

S&P Global Ratings on Thursday bumped up India's investment grade rating, indicating that the economy's growth prospects won't be derailed by the US President Donald Trump administration's 50 per cent tariff shock. India's ratings upgrade comes days after Donald Trump imposed an additional 25 percent tariff due to Russian oil purchases amid Moscow's war in Ukraine.(Representational)
According to a statement from S&P, India's credit rating has been upgraded to BBB from BBB-, with a stable outlook. The bump places India in the same rating category as countries like Mexico, Indonesia, and Greece. The ratings reflect India's stronger economic fundamentals, S&P (previously Standard and Poor's) said.
'The upgrade of India reflects its buoyant economic growth, against the backdrop of an enhanced monetary policy environment that anchors inflationary expectations. Together with the government's commitment to fiscal consolidation and efforts to improve spending quality, we believe these factors have coalesced to benefit credit metrics,' S&P said in the statement.
The upgrade comes days after Donald Trump imposed an additional 25 per cent tariff due to Russian oil purchases amid Moscow's war in Ukraine. The total tariff now stands at 50 per cent.
According to an estimate by Bloomberg Economics, India's exports to the US could drop by 60 per cent if the tariffs remain in place, putting nearly 1 percent of its gross domestic product at risk.
S&P, however, said the economic impact will be 'manageable' as 60 per cent of India's growth is driven by domestic consumption.
While the US tariffs 'may eventually result in a one-off hit to growth, we envisage the overall impact to be marginal and will not derail India's long-term growth prospects,' the statement said.
India's sovereign 10-year bonds rallied, with yields falling as much as 10 basis points to 6.38 percent following the announcement. The rupee also rallied after the announcement.
S&P's growth forecast for India
S&P Global Ratings expects India's GDP to grow at an annual rate of 6.8 percent over the next three years. By contrast, the Reserve Bank of India (RBI) last week projected 6.5 percent growth for the current fiscal year, with governor Sanjay Malhotra adding that the country should aspire to a higher growth trajectory.
The union government welcomed the S&P's decision to upgrade ratings.
'India's prioritising of fiscal consolidation, while maintaining its strong infrastructure drive and inclusive growth approach, has led to the upgrade,' the Department of Economic Affairs Secretary Anuradha Thakur said in a statement.