S&P Global upgrades India's sovereign rating to 'BBB' on strong growth, fiscal reforms

Times of Oman

8 hours ago

New Delhi: In a significant boost to investor confidence, S&P Global Ratings has upgraded India's long-term unsolicited sovereign credit rating to 'BBB' from 'BBB-', while also raising the short-term rating to 'A-2' from 'A-3'.
The outlook on the long-term rating remains stable, reflecting optimism around India's policy continuity, robust economic growth, and improved fiscal management.
Alongside the rating upgrade, S&P also revised its transfer and convertibility assessment for India to 'A-' from 'BBB+', citing an improved monetary and external environment.
According to S&P, the stable outlook suggests confidence in India's ability to sustain its growth trajectory, driven by high levels of infrastructure investment and a disciplined policy environment.
The rating agency noted that the government's efforts in fiscal consolidation, along with targeted spending, are helping reduce the weight of elevated debt and interest burdens over time.
However, the agency warned that any backsliding on fiscal discipline or a material slowdown in structural economic growth could exert downward pressure on the ratings. Conversely, a further upgrade may be possible if India significantly narrows its fiscal deficit, bringing net general government debt additions below 6 per cent of GDP on a sustainable basis.
India's economic momentum was central to the upgrade decision. Real GDP growth averaged 8.8 per cent between fiscal years 2022 and 2024 -- the highest in the Asia-Pacific region -- and S&P expects this strength to continue, projecting average growth of 6.8 per cent annually over the next three years.
This strong growth, despite ongoing fiscal deficits, is helping to moderate the debt-to-GDP ratio. The agency said India's reliance on domestic consumption, which drives around 60 per cent of GDP growth, offers resilience against external shocks, including recent U.S. tariffs and changes in energy import sources.
India's fiscal position, historically a weak point in its ratings profile, is showing signs of improvement. S&P noted a gradual consolidation path, projecting the general government deficit to shrink from 7.3 per cent of GDP in fiscal 2026 to 6.6 per cent by fiscal 2029.
A key driver behind this fiscal improvement is a shift in government spending priorities. Over the past five to six years, budget allocations have increasingly favored capital expenditure. The Union Government's capex is set to reach INR 11.2 trillion -- about 3.1 per cent of GDP in fiscal 2026, up from 2 per cent a decade ago. Including spending by state governments, total public infrastructure investment now stands at about 5.5 per cent of GDP, putting India on par with or ahead of global peers.
On the monetary policy front, reforms such as the shift to inflation targeting have paid off. Inflation expectations are better anchored, and consumer price inflation has averaged 5.5 per cent over the past three years -- well within the RBI's target range of 2 per cent-6 per cent. Recent data shows inflation hovering near the lower end of this band, despite global volatility in energy markets.
S&P emphasized that India's rating is underpinned by a vibrant economy, a strong external balance sheet, and democratic institutions that contribute to policy stability and predictability.
However, the country still faces structural challenges, particularly a high government debt burden, persistent fiscal deficits, and relatively low per capita income, which continue to weigh on its overall credit profile.