Economy: S&P upgrades resilient India’s ratings to ‘BBB’
Virendra Pandit
New Delhi: Despite global economic headwinds, credit rating agency S&P Global upgraded India’s long-term unsolicited sovereign credit ratings from “-BBB” to “BBB” on Thursday, citing economic resilience and sustained fiscal consolidation.
This upgrade has come after 17 years and means foreign investors will find India more attractive. It will help the country to maintain a higher growth rate.
The agency’s outlook on the long-term rating is stable. S&P’s is the second sovereign rating revision this year. DBRS had recently upgraded India to BBB status.
Earlier, it had revised the outlook on India’s rating in May 2024 from stable to positive on robust growth and improved quality of government expenditure, the media reported.
“The upgrade of India reflects its buoyant economic growth, against the backdrop of an enhanced monetary policy environment that anchors inflationary expectations,” S&P said in a statement.
“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,” it added.
The Indian rupee (INR) strengthened to 87.58 against the US dollar from 87.66, while the benchmark 10-year bond yield fell 7 basis points to 6.38 percent soon after the announcement.
The agency also revised its transfer and convertibility assessment from “BBB+” to “A-”.
S&P may, however, lower India’s ratings if it sees an erosion of political commitment to consolidate public finances, while downward pressure could also come from economic growth slowing materially on a structural basis such that it undermines fiscal sustainability, it said.
Ratings could be further raised if fiscal deficits narrow meaningfully such that the net change in general government debt falls below 6 percent of GDP on a structural basis, it added.
According to the rating agency, the stable outlook reflects continued policy stability and suggests that high infrastructure investment will support India‘s long-term growth prospects. “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.”
Welcoming the decision, the Union Finance Ministry said the upgrade reaffirms that, under Prime Minister Narendra Modi’s leadership providing stability, India’s economy is truly agile, active, and resilient. “India has prioritised fiscal consolidation, while maintaining its strong infrastructure *creation* drive and inclusive growth approach, which has led to the upgrade. India will continue its buoyant growth momentum and undertake steps for further reforms to attain the goal of Viksit Bharat by 2047,” the Ministry said in a social media post.
According to the agency, India remains among the best-performing economies in the world. It staged a remarkable comeback from the COVID-19 pandemic, with real GDP growth over FY22 to FY24 averaging 8.8 percent, the highest in the Asia-Pacific region. “We expect these growth dynamics to continue in the medium term, with GDP increasing 6.8 percent annually over the next three years. This has a moderating effect on the ratio of government debt to GDP despite still-wide fiscal deficits,” it said.
Regarding the downward scenario, the agency stated that it might lower the ratings if there is an erosion of political commitment to consolidate public finances. In addition, downward pressure could also come from India‘s economic growth slowing materially on a structural basis, thereby undermining fiscal sustainability.
