S&P Upgrades India's Sovereign Credit Rating Amidst Economic Reforms

In a move that may bolster investor confidence, S&P Global Ratings has upgraded India's long-term unsolicited sovereign credit rating from 'BBB-' to 'BBB'. The short-term rating also saw an uplift to 'A-2' from 'A-3'. The stable outlook reflects optimism about India's policy continuity, robust economic growth, and improved fiscal management.

Alongside the credit rating upgrade, S&P adjusted its transfer and convertibility assessment for India to 'A-' from 'BBB+'. This decision was based on an improved monetary and external environment. The stable outlook, according to S&P, suggests confidence in India's ability to sustain its growth trajectory, fueled by substantial infrastructure investments and a disciplined policy environment.

While acknowledging fiscal consolidation efforts, S&P warned that reversing fiscal discipline or a slowdown in economic growth could pressure the ratings. Conversely, significant narrowing of the fiscal deficit, bringing net general government debt additions below 6% of GDP on a sustainable basis, could invite further upgrades.

India's strong economic growth was central to the upgrade. With real GDP growth averaging 8.8% between fiscal years 2022 and 2024, S&P projects an annual growth rate of 6.8% over the next three years. This robust growth, driven largely by domestic consumption, counters fiscal deficits and moderates the debt-to-GDP ratio.

India's fiscal position shows signs of improvement, historically a weak point. S&P projects the general government deficit to fall from 7.3% of GDP in 2026 to 6.6% by 2029. A shift in government spending towards capital expenditure underpins this improvement, with public infrastructure investment now at 5.5% of GDP.

On the monetary policy front, reforms like inflation targeting have stabilized inflation expectations. Consumer price inflation has averaged 5.5% over the past three years within the RBI's target range. The vibrant economy, strong external balance, and democratic institutions support India's rating, offering policy stability.

Despite the positive outlook, India faces challenges such as high government debt, fiscal deficits, and low per capita income. Nonetheless, the upgrade acknowledges India's enhanced economic fundamentals and policy framework, potentially increasing its appeal to global investors.

(With inputs from agencies.)