S&P Upgrades India’s Sovereign Rating to BBB with Stable Outlook After 18 Years

The upgrade is being hailed as a strong endorsement of India’s robust economic fundamentals, prudent fiscal management, and policy predictability.

In a significant vote of confidence in India’s economic performance and fiscal discipline, Standard & Poor’s (S&P) Global Ratings has upgraded the country’s long-term sovereign credit rating from ‘BBB-’ to ‘BBB’ and its short-term rating from ‘A-3’ to ‘A-2’, both with a Stable Outlook. This upgrade marks India’s first sovereign rating improvement by S&P in 18 years, the last upgrade being in 2007, when India was elevated to investment-grade at ‘BBB-’.

The latest decision follows S&P’s earlier move in May 2024 to revise India’s outlook from Stable to Positive. The upgrade is being hailed as a strong endorsement of India’s robust economic fundamentals, prudent fiscal management, and policy predictability.

Why the Upgrade? S&P’s Assessment

In its sovereign rating review released today, S&P cited multiple reasons for the upgrade:

• Sustained Economic Growth: India remains one of the fastest-growing major economies in the world, with real GDP growth averaging 8.8% from FY22 to FY24—the highest in the Asia-Pacific region.

• Fiscal Consolidation & Quality Spending: The government’s commitment to fiscal deficit reduction and prioritisation of capital expenditure (capex) and infrastructure development have enhanced economic resilience.

• Strong Balance Sheets: India’s corporate, financial, and external sectors remain robust.

• Inflation Control: Credible inflation management, underpinned by the adoption of an inflation-targeting framework, has anchored price expectations.

• Policy Predictability & Continuity: India’s democratic institutions continue to ensure stability and long-term policy consistency.

• Financial Market Development: Deepening of domestic capital markets has provided stability and funding for economic growth.

Resilience Amid Global Headwinds

S&P highlighted that despite global price shocks, supply chain disruptions, and economic headwinds, India maintained overall price stability and safeguarded growth momentum. The agency also noted that the recent U.S. tariffs are likely to have a limited impact due to the strength of India’s large domestic consumption base.

Growth Outlook Remains Strong

Looking ahead, S&P projects GDP growth of 6.5% in FY26, with strong momentum expected over the next three years. The agency indicated that further narrowing of the fiscal deficit, continued public investment, and reforms in governance and business conditions could lead to additional rating upgrades in the future.

Government’s Reaction The Ministry of Finance welcomed the upgrade, calling it a “significant affirmation of India’s economic trajectory”. The ministry stated that this development reflects international recognition of India’s sound macroeconomic policies, resilient growth, and structural reforms undertaken in recent years.

Alignment with Other Agencies

The upgrade by S&P comes shortly after Morning Star DBRS also elevated India’s sovereign credit rating to ‘BBB’, signalling growing global confidence in India’s ability to sustain high growth while maintaining financial stability.

Implications for the Economy

A sovereign rating upgrade can have far-reaching effects, including:

• Lower borrowing costs for the government and corporates in global markets.

• Increased foreign investment inflows due to improved risk perception.

• Enhanced investor confidence in India’s economic stability and governance.

With the upgrade, India has moved further up in the investment-grade category, reinforcing its position as a key growth engine in the global economy.