S&P Global Upgrades India's Sovereign Rating From 'BBB-' To 'BBB' With Stable Outlook
This is the first time India has received a soverign rating upgrade since 2017.
S&P Global Ratings on Thursday upgraded India’s sovereign rating to BBB from BBB-, with a stable outlook. The rating was upgraded citing economic resilience and sustained fiscal consolidation.
“The stable outlook reflects our 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,” S&P Global said.
BBB- is the lowest investment-grade rating by a credit rating agency. An upgrade from this level can lower bond yields and improve the government’s borrowing costs, along with helping improve international capital flows.
“At the same time, we revised our transfer & convertibility assessment to ‘A-’ from ‘BBB+’,” S&P Global said in a statement.
India’s benchmark 10-year bond yield fell seven basis points after the announcement, trading at 6.4%.
The upgrade is a motivation for fiscal prudence, Bloomberg reported quoting Chief Economic Adviser V Anantha Nageswaran as saying.
The global rating agency firm said that the ratings could be lowered if it sees a weakening in political commitment to consolidate public finances. Downward pressure could also come from a material slowdown in India’s structural economic growth that undermines fiscal sustainability.
S&P said the upgrade reflects India’s buoyant economic growth and an enhanced monetary policy framework that anchors inflation expectations. “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 said.
Long Term Growth Prospects Intact; Sustainable Debt
The agency projects India’s gross domestic product will grow 6.8% annually over the next three years. It said this would help moderate the ratio of government debt to GDP despite still-wide fiscal deficits.
India's weak fiscal settings had always been the most vulnerable part of its sovereign ratings profile, the ratings agency reaffirmed. With economic recovery now well on track, the government can depict a more concrete (albeit gradual) path to fiscal consolidation. "Our projections indicate a general government deficit of 7.3% of GDP in fiscal 2026 to decline to 6.6% by fiscal 2029," it said.
S&P said the impact of US tariffs on Indian exports would be manageable. “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.
India's exports to the U.S. constitute about 2% of GDP. Factoring in sectoral exemptions on pharmaceuticals and consumer electronics, the exposure of Indian exports subjected to tariffs is lower at 1.2% of GDP, it said, adding that it expects the overall impact to be marginal and not derail India's long-term growth prospects.
Higher Flows, Softer Yields?
This will have lots of long-term implications, including flows in bonds and a serious reduction in FPI selling, said Gurmeet Chadha, chief investment officer at Complete Circle. Long-duration bonds are the juiciest in terms of asset allocation right now.”
