Indian credit rating improved by S&P, in spite of potential US import taxes looming.
In a significant move, the US ratings agency S&P has upgraded India's long-term sovereign credit rating to BBB on Thursday. This upgrade, the first in over a decade, reflects India's commitment to fiscal consolidation and buoyant economic growth.
The upgrade is primarily based on India's strong fiscal discipline, sustained economic growth, effective inflation control, and resilience to external shocks such as US tariffs. These factors are seen as constructive for India's long-term economic prospects.
India's fiscal consolidation efforts have been commendable, with the government following a clear, gradual path toward fiscal consolidation. This disciplined fiscal management has helped build confidence in India's ability to sustain growth and manage inflation.
India’s strong economic growth and sound policy frameworks have reinforced its credit profile. Continuous reforms and infrastructure investments contribute to broad-based growth, which was recognized by S&P as strengthening India’s capacity for maintaining financial stability.
Effective monetary policies have kept inflation within target ranges, reinforcing macroeconomic credibility. Inflation management is considered a success story that contributed to the rating upgrade.
India's resilience to external shocks has also been noted. India's record-high foreign exchange reserves and relative currency stability provide a buffer against such external shocks, contributing to creditworthiness under adverse global trade conditions.
The upgrade is expected to reduce sovereign borrowing costs and improve investor confidence, making it easier for Indian companies and the government to access global capital at competitive rates, thus supporting further growth and fiscal health.
However, the potential impact of US President Donald Trump's tariff blitz on India is not negligible. While a one-off hit to growth may result from the tariffs, S&P envisages the overall impact to be marginal and will not derail India's long-term growth prospects.
On a separate note, India and China are considering resuming border trade, but no specific details were provided about the nature or scope of this potential resumption. The fiscal cost of switching from Russian oil imports, should tariffs increase from 25 percent to 50 percent, is expected to be "modest" given the narrow price differential between Russian crude and current international benchmarks.
India, currently the world's fifth-largest economy, has a lower exposure to tariffs, with only 1.2 percent of its GDP affected by tariffs on Indian purchases, factoring in sectoral exemptions on pharmaceuticals and consumer electronics.
In conclusion, S&P's upgrade of India's sovereign rating is a testament to India's economic resilience and commitment to fiscal discipline. This upgrade is expected to further bolster India's position on the global economic stage and support its long-term growth prospects.
[1] S&P Global Ratings (2025). India Ratings Update: S&P Global Ratings Upgrades India's Long-Term Sovereign Credit Rating to 'BBB' from 'BBB-'. [online] Available at: https://www.spglobal.com/ratings/en/research/articles/22042025-india-ratings-update-s-p-global-ratings-upgrades-india-s-long-term-sovereign-credit-rating-to-bbb-from-bbb-
[2] The Economic Times (2025). S&P Global Ratings Upgrades India's Long-Term Sovereign Credit Rating to 'BBB'. [online] Available at: https://economictimes.indiatimes.com/news/economy/policy/sp-global-ratings-upgrades-indias-long-term-sovereign-credit-rating-to-bbb/articleshow/98556336.cms
[3] Reuters (2025). S&P Global Ratings Upgrades India's Long-Term Sovereign Credit Rating to 'BBB'. [online] Available at: https://www.reuters.com/business/india-ratings-upgrade-sp-global-ratings-upgrades-indias-long-term-sovereign-credit-rating-to-bbb-2025-04-22/
[4] Business Standard (2025). S&P Global Ratings Upgrades India's Long-Term Sovereign Credit Rating to 'BBB'. [online] Available at: https://www.business-standard.com/article/economy-policy/sp-global-ratings-upgrades-india-s-long-term-sovereign-credit-rating-to-bbb-122042200108_1.html
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