S&P Upgrades India’s Credit Rating After 18 Years
India’s ratings outlook was last upgraded to 'positive' from 'stable' in 2024, a change which was initiated after a decade when the outlook was raised from 'negative' to 'stable'.
New Delhi: Amid the US tariff threats, global credit ratings agency S&P Global upgraded India's long-term sovereign credit ratings to 'BBB' for the first time since 2007, citing economic resilience and fiscal consolidation. This rating agency's decision has been welcomed by the government as well. After 18 years, the rating upgrade by a US-based agency was elevated and it came days after American President Donald Trump dubbed India as a "dead economy”. Trump has imposed the highest 50 per cent tariff on Indian goods with effect from August 27.
Reacting to the agency's outlook, the ministry of finance welcomed it, saying that the rating upgrade is a significant affirmation of India’s economic trajectory and prudent fiscal management. "This marks the country’s first sovereign upgrade by S&P in 18 years, the previous one being in 2007 when India was elevated to investment grade at BBB-. In May 2024, the agency revised its outlook on India from ‘stable’ to ‘positive’," the ministry said.
India’s ratings outlook was last upgraded to 'positive' from 'stable' in 2024, a change which was initiated after a decade when the outlook was raised from 'negative' to 'stable'. "Aside of the long-term sovereign credit ratings at 'BBB', India's short-term ratings has been upgraded to 'A-2' from 'A-3', with the outlook on the long-term rating remaining as stable. India will continue its buoyant growth momentum and undertake steps for further reforms to attain the goal of Viksit Bharat by 2047,” the rating agency said.
Analysing the India's economy scenario, the rating agency also pointed out that India remains among the best performing economies in the world. "It staged a remarkable comeback from the pandemic with real GDP growth over fiscal 2022 (year-end March 31) to fiscal 2024 averaging 8.8 per cent, the highest in Asia-Pacific. We expect these growth dynamics to continue in the medium term, with GDP increasing 6.8 per cent annually over the next three years.
The quality of government spending has improved in the past five to six years," S&P Global said.
On the US 50 per cent tariff threats on India, the rating agency also noted that the impact of US tariffs on India will be manageable, given the domestic focus of the economy. "We believe the effect of US tariffs on the Indian economy will be manageable. India is relatively less reliant on trade and about 60 per cent of its economic growth stems from domestic consumption. We expect that in the event India has to switch from importing Russian crude oil, the fiscal cost, if fully borne by the government, will be modest given the narrow price differential between Russian crude and current international benchmarks," it said.
Given the exemption for certain categories, India's exports facing the tariff threat are a small part of the total GDP, S&P also said that though the US is India's largest trading partner, the agency does not expect the 50 per cent tariffs (if imposed) to pose a material drag on growth. "India's exports to the U.S. constitute about 2 per cent of GDP. Factoring in sectoral exemptions on pharmaceuticals and consumer electronics, the exposure of Indian exports subjected to tariffs is lower at 1.2 per cent of GDP," it said.
Last, but not the least, the stable outlook reflects S&P's view that continued policy stability and 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.India's weak fiscal settings had always been the most vulnerable part of its sovereign ratings profile," the agency said, adding that with economic recovery now well on track, the government can depict a more concrete (albeit gradual) path to fiscal consolidation
