Standard & Poor’s (S&P) Global Ratings upgraded India’s long-term sovereign credit rating to ‘BBB’ from ‘BBB-’ and its short-term rating to ‘A-2’ from ‘A-3’, with a Stable Outlook marking the first such upgrade in 18 years.
Key Highlights of S&P Global Ratings on India
- Strong and Buoyant Growth Prospects: S&P projected India’s GDP to grow from $3.9 trillion in 2024 to $5.5 trillion by 2028, with growth averaging around 6.8% annually.
- Commitment to Fiscal Consolidation: The agency highlighted India’s adherence to fiscal prudence, projecting the general government deficit to reduce from 7.3% of GDP in 2025-26 to 6.6% in 2028-29.
- Improved Quality of Public Spending: Greater emphasis on capital expenditure and infrastructure investment has strengthened the quality of spending, fostering long-term growth and productivity.
- Anchored Inflation and Monetary Stability: India’s adoption of an inflation-targeting regime has anchored inflation expectations, despite global shocks, ensuring greater price stability and credibility in policy.
- Strong External and Financial Position: Deepening domestic capital markets, resilient corporate balance sheets, and strong democratic institutions were recognised as enablers of financial stability and long-term policy continuity.
Significance for the Indian Economy
- Strengthened Global Economic Standing: The upgrade affirms India’s position as one of the fastest-growing major economies globally, reflecting confidence in its resilience and structural reforms.
- Encouragement for Investments and Capital Inflows: A higher credit rating enhances investor confidence, potentially leading to greater foreign direct investment and lower borrowing costs for India.
- Recognition of Prudent Fiscal Management: The decision validates the government’s debt-deficit consolidation strategy, projecting India’s debt-to-GDP ratio to decline from 83% in FY25 to 78% in FY29, bringing it “closer to its pre-pandemic level.”
- Limited Impact of Global Headwinds: S&P assessed that India’s low reliance on exports (only 2% of GDP directed to the US) and domestic consumption base cushion it from tariff shocks.
About S&P Global Ratings
- S&P Global Ratings, a division of S&P Global Inc. (established in 1860, USA), provides credit ratings, benchmarks, and analytics.
- Its primary purpose is to evaluate the creditworthiness of sovereigns, corporates, and financial instruments.
- Categories of Ratings and Indications: Similar to academic grades, each rating consists of a letter on a scale of A to D, sometimes augmented with a plus or minus sign or a number. The higher the grade, the lower the risk of default in S&P’s estimation.
- A rating of BBB and above is deemed investment grade, the safest sort of investment.
- Ratings below BBB are considered speculative, having a greater degree of risk.
- Long term Vs Short term Rating
| Aspect |
Long-Term Rating |
Short-Term Rating |
| Time Horizon |
Assesses the creditworthiness of an entity over more than one year, focusing on ability to meet medium to long-term debt obligations. |
Evaluates the capacity to meet financial commitments within one year, mainly for instruments like treasury bills or commercial papers. |
| Risk Indication |
Indicates the overall financial stability and repayment capacity of a government or corporate over the long term.
(e.g., India upgraded to BBB). |
Reflects the short-term liquidity and immediate repayment ability.
(e.g., India upgraded to A-2 from A-3). |
Conclusion
The S&P rating upgrade from BBB- to BBB reaffirms India’s economic journey with its growth potential, fiscal responsibility, and resilience amidst global uncertainties.
What is a Sovereign Credit Rating?
- A Sovereign Credit Rating (SCR) is an independent assessment of a country’s creditworthiness, indicating the risk for investors in lending to or buying debt from that country.
- It reflects the likelihood that a government will honour its debt obligations, factoring in both economic and political risks.
- Obtaining a good rating is crucial, especially for developing nations, as it enables access to international bond markets and attracts foreign direct investment (FDI).
Examples of Sovereign Credit Ratings
- Fitch Ratings: Countries rated BBB- and above are “investment grade,” while BB+ and below are considered speculative.
- Standard & Poor’s (S&P): Uses a similar scale, with BBB- and above as investment grade and BB+ or lower as junk grade.
- Moody’s: Ratings of Baa3 or higher are investment grade; Ba1 and below are speculative.
- Indian Credit Agency: There are six major credit rating agencies registered with SEBI in India – CRISIL, ICRA, CARE, SMERA, Fitch India, and Brickwork Ratings.
- CRISIL was the first agency established in 1987
- SEBI (Credit Rating Agencies) Regulations, 1999 of the Securities and Exchange Board of India (SEBI) Act, 1992 govern credit rating agencies in India.
Determinants of Sovereign Credit Ratings
- Debt Service Ratio: Higher external debt servicing requirements raise the risk of default, lowering ratings.
- Fiscal and Monetary Discipline: Rapid growth in domestic money supply signals inflationary risk, weakening ratings.
- Trade Performance: Import ratios and fluctuations in export revenues are closely monitored as indicators of repayment capacity.
- Governance and Political Stability: Political turmoil, weak institutions, or delayed reforms reduce confidence and ratings.
- Global Economic Environment: External shocks such as financial crises, commodity price volatility, or global recessions can adversely affect sovereign ratings.
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18 Aug 2025
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