S&P Global upgrades India’s credit ratings after 18 years

New Delhi: Credit ratings agency S&P Global on Thursday upgraded India's long-term sovereign credit ratings to 'BBB' from 'BBB-' with a stable outlook citing economic resilience, low inflation and sustained fiscal consolidation.

It has also upgraded India’s short-term rating to ‘A-2’ from ‘A-3’. India’s ratings upgrade by S&P Global comes after a gap of 18 years. The last upgrade was in 2007 when it was also upgraded to ‘BBB’.

“The upgrade of India reflects its buoyant economic growth, against the backdrop of an enhanced monetary policy environment that anchors inflationary expectations,” S&P Global said in a statement.

Welcoming the S&P Global's decision, the Union Finance Ministry said ratings upgrade reaffirms that "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, that 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 post on X.

S&P’s is the second sovereign rating revision this year. DBRS had recently upgraded India to BBB status.

The rating upgrade comes at a time when India is facing the threat of imposition of a 50% tariff by the US, which is estimated to hit exports and overall economic growth. US President Donald Trump’s recent “dead economy” remarks also ignited debate on the health of the Indian economy.

Explaining the rationale behind the ratings upgrade, New York-headquartered rating agency noted 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%, the highest in Asia-Pacific. We expect these growth dynamics to continue in the medium term, with GDP increasing 6.8% annually over the next three years. This has a moderating effect on the ratio of government debt to GDP despite still-wide fiscal deficits,” S&P Global said.

On impact of the US tariff, the rating agency said, “We believe the effect of US tariffs on the Indian economy will be manageable. India is relatively less reliant on trade and about 60% 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 has pegged India’s gross domestic product (GDP) growth for the current fiscal at 6.5%, which is in line with the official estimates. Over the next three years India’s economic growth is estimated to average 6.8% annually.

“Though the US is India's largest trading partner, we do not expect the 50% tariffs (if imposed) to pose a material drag on growth,” S&P Global said.

India's exports to the US 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. Though this may eventually result in a one-off hit to growth, we envisage the overall impact to be marginal and will not derail India's long-term growth prospects, it added.