S&P Global Ratings on Thursday upgraded India's long-term sovereign credit rating to 'BBB' from 'BBB-', the first upgrade in 18 years, citing strong economic growth, improved monetary policy credibility, and sustained fiscal consolidation.
The step-up from the US-based rating agency comes a week after President Donald Trump slapped a punitive 50 per cent tariff on exports to the US for purchasing Russian oil and dubbed India a ‘dead economy.
S&P said it expects the impact of US tariffs on the Indian economy to be manageable due to its limited reliance on trade and the dominance of domestic demand in its economy.
The upgrade follows S&P's decision in May 2024 to revise India's outlook to positive from stable, driven by robust growth and better quality of government spending.
"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.
S&P’s action comes days after the other credit rating giant, Moody’s, warned that high tariffs could severely undermine India’s manufacturing ambitions and slow economic growth.
The finance ministry welcomed S&P’s move and said India will continue its buoyant growth momentum and undertake steps for further reforms to become a developed economy by 2047.
India’s economic affairs secretary Anuradha Thakur said she expects other rating agencies to also take note of the factors that have led to the upgrade and follow suit. Moody’s has a ‘Baa3’ rating in place since June 2020, while Fitch has rated India at 'BBB-' since 2006
S&P expects India’s debt-to-GDP ratio to decline to 78 per cent by fiscal year 2029, from 83 per cent in fiscal 2025.
Any shift in India’s oil supplies away from Russia, if fully borne by the government, will have a modest impact on government finances, given the narrow price differential between Russian crude and current international benchmarks, it argued.
Commenting on the upgrade, Aishvarya Dadheech, chief investment officer at Fident Asset Management, said, "The S&P upgrade comes as music for debt markets and also good news given that it comes after the US president termed the Indian economy 'dead'.”
India’s real GDP growth averaged 8.8 per cent between fiscal 2022 and 2024, the highest in Asia-Pacific, and is projected to grow at 6.8 per cent annually over the next three years.
S&P said this momentum was helping moderate the government’s debt-to-GDP ratio despite a wide fiscal deficit.