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

Despite global adverse conditions and price shocks, India’s economy, the fastest growing at the global level, influenced by monetary policy reforms, has been upgraded by S&P after 18 years to BBB with a stable outlook.

• The Ministry of Finance welcomes the decision of Standard & Poor’s (S&P) Global Ratings to upgrade India’s long-term sovereign credit rating from BBB- to BBB and its short-term rating from A-3 to A-2 with a stable outlook.
• Earlier, another rating agency, Morningstar DBRS, had also rated India as “BBB.” India’s sovereign credit rating is Baa3 by Moody’s and BBB- by Fitch, which indicates the lowest investment grade.
• This rating upgrade is an important confirmation of India’s economic trajectory and prudent fiscal management. This is S&P’s first sovereign upgrade for the country in 18 years, the last being in 2007, when India was upgraded to investment grade BBB-.

Praise for the Indian economy

• S&P, in its report, outlined the major strengths of the Indian economy, due to which India has emerged as one of the fastest growing major economies globally, with an average real GDP growth rate of 8.8 percent between FY 2022 and FY 2024 – the highest in the Asia-Pacific region.
• The agency said that monetary policy reforms, particularly the adoption of the inflation-targeting framework, have more effectively anchored inflation expectations. S&P also acknowledged that despite global adverse conditions and price shocks, India has demonstrated resilience by maintaining overall price stability.

Economic projection

• Looking ahead, S&P has projected GDP growth of 6.5 percent in FY26 and sustained momentum over the next three years. The agency suggested that a declining fiscal deficit and continued public investment could support further positive rating actions.
• According to S&P, the combined fiscal deficit of the central and state governments is estimated at 7.3 percent of GDP in 2025–26, expected to decline to 6.6 percent by 2028–29.

Benefits

• According to Ranen Banerjee, Partner and Economic Advisory Leader at PwC India, the rating upgrade will increase foreign capital inflows.
• This inflow into India will have “a major positive impact on the exchange rate.” He said, “This could also reduce the overall borrowing cost for both the government and the private sector.”

Credit Rating Agencies

• The three largest global rating agencies are Standard & Poor’s (S&P), Moody’s, and Fitch Ratings, all based in the United States. Other notable agencies include DBRS (Canada), JCR (Japan), and Dagong (China).

Rating Scale

• Credit ratings range from AAA (highest) to D (default). Ratings from AAA to BBB- (S&P/Fitch) or Aaa to Baa3 (Moody’s) are considered investment grade; ratings below this are classified as speculative or junk grade.

Parameters Used

• Sovereign credit ratings are based on key parameters such as GDP growth rate, fiscal deficit and public debt levels, inflation and monetary stability, political stability and governance, balance of payments (BoP), and current account balance including foreign reserves.

Impact of Rating

• A higher rating reduces the cost of borrowing for governments and increases investor confidence. A downgrade raises borrowing costs and may cause capital outflows.

Sovereign Credit Rating (SCR) in India

• There are six credit rating agencies in India: CRISIL, ICRA, CARE, SMERA, Fitch India, and Brickwork Ratings. CareEdge (parent company CARE Ratings Limited) became the first Indian credit rating agency to enter the global rating space, including sovereign ratings.
• The SEBI (Credit Rating Agencies) Regulations, 1999 under the Securities and Exchange Board of India Act, 1992 regulate credit rating agencies in India.
• They assess factors such as financial statements, debt levels, repayment history, and creditworthiness, and provide insights to investors for making informed investment decisions.