India Secures First S&P Sovereign Rating Upgrade in Nearly Two Decades

In a historic move, Standard & Poor’s (S&P) Global Ratings has upgraded India’s long-term sovereign credit rating from BBB- to BBB, with a stable outlook. This marks the country’s first rating upgrade in 18 years, signalling renewed global confidence in India’s economic resilience, fiscal discipline, and policy stability.

Prime Minister Narendra Modi's administration has long pressed global rating firms for an upgrade, arguing that India’s robust growth, sound fiscal management, structural reforms. (File Photo: PIB via PTI) | LiveMint

A Recognition of Economic Resilience

S&P’s decision rests on India’s robust macroeconomic fundamentals and its remarkable post-pandemic recovery. Over the past three years, India has recorded an average GDP growth of 8.8%, the highest in the Asia-Pacific region. Looking ahead, the rating agency expects this momentum to continue, projecting an annual average growth rate of around 6.5–6.8% until 2028. This strong performance reflects not only a rebound in consumption and investment but also the government’s commitment to structural reforms.

Fiscal Consolidation and Policy Credibility

One of the most compelling drivers behind the upgrade has been India’s sustained fiscal consolidation efforts. The combined fiscal deficit of the central and state governments, currently at 7.3% of GDP, is projected to narrow to 6.6% over the next four years. S&P also praised India’s transparent fiscal reporting, improved expenditure quality, and enhanced capital spending, particularly in infrastructure development.

Monetary policy has equally contributed to the upgrade. The Reserve Bank of India’s inflation-targeting framework has anchored inflation expectations effectively, keeping price rises within a manageable range despite global commodity volatility.

Withstanding Global Pressures

The upgrade comes at a time when global economic headwinds—particularly rising trade protectionism—pose challenges for emerging markets. India has recently faced steep U.S. tariffs, doubled to 50%, partly due to its continued crude oil imports from Russia. However, S&P concluded that India’s heavy reliance on domestic consumption, which accounts for about 60% of its GDP, has insulated it from severe external shocks. The country’s stable currency, moderate current account deficits, and improved external liquidity have also reinforced its resilience.

Positive Market Response

The financial markets reacted positively to the news. The rupee appreciated modestly, trading between ₹87.58 and ₹87.66 per U.S. dollar, while government bond yields eased by around seven basis points to 6.38%. These movements reflect investor optimism about India’s creditworthiness and borrowing prospects in global markets.

Government and Expert Reactions

The Finance Ministry hailed the upgrade as a testament to Prime Minister Narendra Modi’s economic vision and the government’s disciplined fiscal management. Officials emphasised that this recognition aligns with India’s long-term goal of becoming a “Viksit Bharat” (Developed India) by 2047. Economists noted that while markets had long priced in India’s growth potential, the formal recognition by a global rating agency will further enhance the country’s investment appeal.

Outlook for the Future

S&P has kept the outlook stable, indicating confidence in India’s ability to sustain its growth trajectory while managing fiscal risks. The agency hinted that further upgrades could follow if India continues to reduce its government debt burden and strengthen institutional capacity. However, it also warned that any deterioration in fiscal discipline or slowdown in economic reforms could put downward pressure on the rating.

Conclusion

The S&P upgrade to BBB is more than just a symbolic win—it reflects years of policy discipline, structural reform, and economic resilience in the face of global uncertainty. For India, it means lower borrowing costs, stronger investor confidence, and a greater ability to finance development goals. With its eyes set firmly on 2047, the country’s challenge now will be to maintain this momentum, manage external risks, and ensure that the benefits of growth reach all sections of society.

(Sources: LiveMint, India Today, Business Today)