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Informist, Thursday, Aug. 14, 2025
 

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--S&P: Upgrade India rating to 'BBB' from 'BBB-'; outlook stable 
--S&P: India short-term ratings raised to 'A-2' from 'A-3' 
--S&P: India prioritising fisc consolidation 
--S&P: Robust econ growth having constructive effect on India credit metrics 
--S&P:Sound India econ fundamentals to drive growth momentum in next 2-3 yrs
--S&P: See India GDP growth 6.5% FY26; avg growth 6.8% over next 3 years 
--S&P:India monetary policy more conducive to managing inflation expectation
--S&P: India rating upgrade reflects its buoyant economic growth 
--S&P: Effect of US tariffs on the Indian economy will be manageable
--S&P: US tariffs will not derail India's long-term growth prospects 
--S&P: India fiscal cost of switching away from Russia oil will be modest 
--S&P: Project India general govt deficit 6.6% of GDP FY29 from 7.3% FY26 
--S&P: Quality of India govt spending improved in the past 5-6 years 
--S&P:India infra improvement to remove chokepoints to long-term econ growth 
--S&P: India CAD likely to remain small over the next few years 
--S&P: India's strong external position is a key of its credit profile 
--S&P: India to meet FY26 fisc gap aim despite revenue loss, slower growth 

 

NEW DELHI – S&P Global Ratings Thursday upgraded India's long-term unsolicited sovereign credit rating to 'BBB' from 'BBB-', becoming the first major ratings agency to do so. S&P cited the Indian economy's resilience and sustained fiscal consolidation for the rating upgrade. The ratings agency had cited the same reasoning when it upped its outlook on India's long-term rating to 'positive' from 'stable' in May last year.

 

"The upgrade of India reflects its buoyant economic growth, against the backdrop of an enhanced monetary policy environment that anchors inflationary expectations," the ratings agency said. "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."

 

S&P said it estimates India's GDP growth at 6.5% in 2025-26 (Apr-Mar), which is the same as the Reserve Bank of India's projection, and then to average 6.8% in the next three years, led by solid consumer and public investment dynamics. The US government's tariff on Indian goods, even at 50%, will not pose a material drag on growth as exports to the US make up only 2% of India's GDP.

 

Though the tariffs may lead to a one-off hit to growth, the overall impact will be marginal and not derail India's long-term growth prospects, the ratings agency said. S&P also does not see a large fiscal impact on India even if it moves away from Russian oil imports to get the US tariffs reduced, as the price differential between Russian oil and international markets has dwindled. Russia has been the top source of crude oil imports for India since FY23, with a twelvefold jump in oil shipments in that year. Russian crude oil accounted for a quarter of India's total crude oil imports in each of the last two years, up from a mere 2.7% in FY22.

 

Meanwhile, India's weak debt metrics are expected to improve and favourable GDP growth rates keep government's borrowing sustainable, which the rating agency expects to continue. The general government debt is likely to fall to pre-pandemic levels of 78% of GDP by FY29, from 83% in FY25 and a peak of 91% of GDP. The government is also likely to meet its fiscal deficit target of 4.4% of GDP in FY26 despite foregoing revenues from tax cuts and slower growth than in the past three years, S&P said. On a general government level, the deficit is likely to fall to 6.6% of GDP by FY29 from 7.3% in FY26. The consolidation will be led by the Centre, with states likely to maintain a steady deficit of 2.7% of GDP in the forecast timeline.

 

The upgrade raises India one rung above the lowest investment grade rating in S&P's classification. Fitch Ratings and Moody's Ratings both have India at the lowest rung of investment grade, with a 'stable' outlook. S&P also upgraded its short-term ratings on India to 'A-2' from 'A-3'.

 

"In our view, the success of the government in funding large infrastructure investment without substantially widening the country's current account deficit will be important," S&P said in a report. "If India can shrink the fiscal deficit significantly while achieving these objectives, rating support will strengthen over time."

 

The Centre has recently announced its intent to shift its fiscal consolidation benchmarking to metrics favoured by rating agencies, such as the debt-to-GDP ratio and monitoring interest expenses. The Budget documents for FY26 said the government aims to keep the fiscal deficit each year such that the central government debt will be on a declining path as a percentage of GDP. Its target for fiscal consolidation is that the Centre's debt is 50% of GDP, plus or minus 1%, by FY31 from 56.1% in FY26. 

 

S&P said the quality of government spending had improved in the last five to six years, noting that capital expenditure is now 3.1% of GDP in FY26 from 2?ecadeago. The infrastructure spending is also being pushed by states, and improvements in infrastructure and connectivity will remove chokepoints that were hindering long-term growth. The political stability and continuity in India during the Bharatiya Janata Party's third straight term was also aiding credit metrics. 

 

"The stable outlook reflects our view that continued policy stability and high infrastructure investment will support India's long-term growth prospects," the report said. "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."

 

Monetary policy reforms, in the form of the flexible inflation targetting framework, have also reaped dividends for India and been able to manage inflation expectations, S&P said. Monetary policy has been able to keep CPI inflation within the 2-6% medium-term target band more often than not despite volatilty in global energy prices and supply-side shocks in the past three years. CPI inflation has averaged 5.5% in the period, and in July, fell to an eight-year low of 1.55%.

 

"These developments, coupled with a deep domestic capital market, reflect a more stable and supportive environment for monetary settings," the report said.

 

The ratings agency also said India's sound macroeconomic fundamentals will underpin its growth. Its external metrics also remain strong and are a key of its credit profile, and S&P expects current account deficits in the next three years to likely remain small. The ratings agency forecasts India's current account deficit at 1.0% of GDP in FY26, and 1.3-1.4% of GDP until FY29.

 

S&P outlined both upside and downside scenarios to further ratings changes. "We may raise the ratings if fiscal deficits narrow meaningfully such that the net change in general government debt falls below 6% of GDP on a structural basis," the report said. "The protracted rise in public investment in infrastructure will lift economic growth dynamism that, combined with fiscal adjustments, would alleviate India's weak public finances."

 

On the other hand, the agency may lower India's sovereign rating if the political will for fiscal consolidation falters. Another downside risk is if India's economic growth slows materially on a structural basis, such that fiscal sustainability is under threat.  End

 

Reported by Shubham Rana and Aaryan Khanna

Edited by Vandana Hingorani

 

 

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