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Advocacy Article: India's Standing Deserves a Boosted Evaluation

India's credit rating has been elevated to BBB, yet it remains only two ranks above junk status, a disparity that does not appear to align with India's status as an expanding economy boasting solid institutions.

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Editorial advocating for India's improved rating assessment
Editorial advocating for India's improved rating assessment

Advocacy Article: India's Standing Deserves a Boosted Evaluation

India's Sovereign Rating Upgraded to 'BBB' by S&P Global Ratings

India's credit rating has taken a significant step forward, as S&P Global Ratings upgraded the country's sovereign rating from 'BBB-' to 'BBB' in August 2025. This move places India one notch above the lowest investment grade level.

The upgrade is a testament to India's strong economic growth, improved fiscal consolidation, quality public spending, and external resilience, even in the face of global uncertainties. However, the rating remains cautious, as India's rating still resides at the lower end of investment grade due to several reasons.

One of the primary concerns is India's fiscal deficits and debt levels. While the country has shown improvement, its fiscal consolidation is gradual, and it still carries moderate levels of public debt relative to more highly rated advanced economies. This impacts the rating ceiling.

Other structural challenges, such as inflation management, bureaucratic and regulatory reforms, infrastructure bottlenecks, and political risk factors, also contribute to the rating agencies' cautious approach. External factors like global trade tensions, geopolitical risks, and volatility in capital flows further complicate the situation.

Sovereign ratings often consider factors beyond immediate economic growth and crisis management, including long-term institutional strength and policy consistency. There are also criticisms about biases and "rating ceilings" which limit potential upgrades.

Despite these challenges, the recent upgrade to 'BBB' is a significant milestone, signaling growing confidence but also reflecting a cautious balance of risks and strengths. S&P Global has assigned a stable outlook to India, citing continued policy stability and high infrastructure investments.

The upgrade could temper borrowing costs for Indian companies and financial institutions seeking to borrow overseas. However, it may also create pressure on the government to persist with conservative fiscal policies, reducing the headroom for fiscal measures to offset the US tariff threat.

India's strengths as a growing economy with sound institutions, a stable financial system, and an unblemished track record in meeting its international obligations are not fully reflected in its current sovereign rating. S&P Global lauds India for its "remarkable comeback" from the pandemic, averaging real GDP growth of 8.8% between FY22 and FY24.

The government of India has set tight deficit targets in the last three Budgets, which it has bettered in performance. India's fiscal deficit has been moderated from 9% in FY21 to 4.8% by FY25 through ruthless fiscal consolidation.

S&P Global has also upgraded India's short-term ratings from A3 to A2. The rating upgrade could support foreign portfolio investor (FPI) flows into the government securities market. India's general government debt-to-GDP ratio is 83%, compared to 124% for the US, over 110% for France, 96% for the UK, and over 230% for Japan.

S&P Global estimates 6.8% GDP growth over the next three years for India. The US federal debt has increased from $27.9 trillion before Covid to over $37 trillion now, with a fiscal deficit expanding from 4.5% to 6.2% of GDP. Despite India's stronger fiscal position compared to some advanced economies, it still only has an investment-grade rating.

The financial markets seem to already recognize India's improving fiscal position, as evidenced by the softening of government bond yields in the last two years. S&P's rating upgrade could support the continued softening of government bond yields. Despite the challenges, India's journey towards a higher credit rating continues.

  1. The upgrade places India one notch above the lowest investment grade level, indicating that the markets now view India as a more attractive destination for investment.
  2. The stable outlook assigned to India by S&P Global is a reflection of their confidence in the country's policy consistency and high infrastructure investments.
  3. Criticisms about biases and rating ceilings have been raised, suggesting that there are limitations to potential upgrades despite Indian's economic improvements.
  4. Despite the unblemished track record in meeting international obligations, India's current sovereign rating does not fully reflect its strengths as a growing economy with sound institutions and a stable financial system.
  5. Subscription to business and finance publications may provide insights and opinions on India's economic potential and the factors influencing its sovereign rating in the future.
  6. The government's tight deficit targets and successful fiscal consolidation could encourage further investment in the economy, contributing to India's journey towards a higher credit rating.

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