S&P Upgrades India's Sovereign Credit Rating for First Time in 18 Years
S&P Global Ratings has upgraded India's long-term sovereign credit rating to 'BBB' from 'BBB-', the first such upgrade since 2007. The agency cited the country's robust economic growth, fiscal consolidation, and effective monetary policy. The upgrade is expected to lower borrowing costs for Indian companies in international markets. S&P noted that India remains one of the world's best-performing economies and stated that the impact of potential US tariffs would be manageable due to the economy's strong domestic focus.
Unpacked:
A 'BBB' rating is the lowest tier of investment grade, indicating moderate credit risk and adequate capacity to meet financial commitments. It places India in the same category as countries like Mexico, Indonesia, and Greece, and signals to investors that India’s economic fundamentals are strong enough to support its debts reliably.
The new 50% US tariffs could significantly reduce Indian exports to the US, with estimates suggesting a potential 60% drop, risking nearly 1% of India’s GDP. However, S&P believes the overall economic impact will be manageable due to India’s relatively low reliance on exports and its strong domestic consumption base.
S&P cited robust economic growth, effective monetary policy, fiscal consolidation, and improved government spending quality as key reasons for the upgrade. The agency expects continued policy stability and infrastructure investment to sustain growth and support India’s credit metrics in the coming years.
S&P warns that a downgrade could occur if there is a significant slowdown in economic growth or if political commitment to fiscal consolidation weakens, undermining fiscal sustainability. An increase in fiscal deficits or government debt could also prompt a negative ratings action.