S&P upgrades India's sovereign rating to BBB, cites economic resilience and fiscal discipline

Mint

a day ago

NEW DELHI: S&P Global Ratings on Thursday raised India's long-term sovereign credit rating to BBB from BBB-, citing stronger macroeconomic fundamentals, including economic resilience, sustained fiscal consolidation, and a policy environment conducive to controlling inflation.
The upgrade moves India one notch higher within the investment-grade category, a shift that could lower borrowing costs and lift investor sentiment.
S&P said continued reforms, fiscal discipline, and infrastructure investment could further strengthen the credit profile in the years ahead.
'The stable outlook reflects our view that continued policy stability and high infrastructure investment will support India's long-term growth prospects,' S&P said in a statement. 'That, along 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.'
The agency cautioned, however, that the rating could be cut if political resolve to pursue fiscal consolidation weakens, or if economic growth slows materially on a structural basis, undermining fiscal sustainability.
The Modi administration has long pressed global rating firms for an upgrade, arguing that India's robust growth, sound fiscal management, structural reforms. particularly in infrastructure and digitalisation, and a resilient banking system are not fully reflected in ratings stuck at the lowest investment grade.
Officials contend that such ratings can deter foreign investment and push up borrowing costs. New Delhi has also questioned what it calls opaque methodologies that may be biased against developing economies.
Moody's currently rates India at Baa3 with a stable outlook, while Fitch assigns a BBB- rating, also with a stable outlook—both the lowest rung of investment grade.
In its report, S&P said the upgrade reflects India's buoyant growth 'against the backdrop of an enhanced monetary policy environment that anchors inflationary expectations.' The agency cited the government's commitment to fiscal consolidation and improving spending quality as factors benefiting credit metrics.
Resilient domestic consumption, which accounts for about 60% of GDP, should cushion the impact of external shocks, including potential US tariffs, S&P said. Even if India were forced to stop importing Russian crude, the fiscal impact would be modest given the narrow price gap with international benchmarks, it added.
S&P also pointed to the dividends of India's inflation-targeting regime. Despite global commodity volatility, consumer price growth averaged 5.5% over the past three years. Headline inflation eased to 1.6% in July, creating room for the Reserve Bank of India to cut policy rates by as much as 100 basis points this year, to 5.5%.
The stable outlook assumes policy continuity, strong infrastructure spending, and prudent fiscal and monetary management will sustain growth while gradually reducing India's debt load. A further upgrade could follow if fiscal deficits fall to structurally lower levels and public debt ratios improve materially, S&P said.
India's credit strengths—its dynamic economy, deep domestic capital markets, and strong external position—are tempered by wide fiscal deficits, high public debt, and low per capita income. Yet, with recovery entrenched, reforms advancing, and infrastructure bottlenecks easing, S&P expects these constraints to diminish over time.