Credit ratings agency S&P Global has upgraded the long-term sovereign credit rating of India from 'BBB-' to 'BBB', citing the economic resilience and stable fiscal consolidation of the country, as per a statement released on August 14.
The agency had a stable outlook as it stated that India's policy stability and robust infrastructure investment are likely to sustain long-term growth. S&P emphasized that such fundamentals would continue to support India's growth pace in the next two to three years.
In addition to the long-term upgrade to 'BBB', India's short-term rating has been upgraded from 'A-3' to 'A-2', while the long-term rating outlook is stable. The report highlighted India's strong growth track record, especially post-pandemic, with GDP growth at 8.8% on average between FY22–FY24—the highest in the Asia-Pacific.".
India is one of the world's leading performing economies. It put up a stunning recovery from the pandemic with real GDP growth between fiscal 2022 to fiscal 2024 averaging 8.8%, the highest in Asia-Pacific. We look for these growth patterns to persist in the medium term, with GDP growing 6.8% per annum over the next three years. This softens the ratio of government debt to GDP even as still-broad fiscal deficits persist," S&P stated.
S&P estimated India's GDP would continue to grow 6.8% per annum over the three years, bolstered by consumption and government expenditure, and possibly recording real GDP growth of 6.5% in FY26. The agency also estimated the effect of prospective U.S. tariffs on India will be contained given the domestic orientation of the economy.
We think the impact of U.S. tariffs on the Indian economy will be manageable. India is comparatively less dependent on trade, and nearly 60% of its economic growth is due to domestic consumption. If India needs to replace imports of Russian crude oil, the fiscal cost, if the government is to absorb it fully, will be moderate considering the thin price difference between Russian crude and prevailing international benchmarks," S&P further said.
The rating agency added that India's exports at risk from tariffs account for a mere fraction of GDP. "Even though the U.S. is India's largest trading partner, we don't believe the 50% tariffs (if implemented) will have a material impact on growth. India's exports to the U.S. account for around 2% of GDP. Including sectoral exemptions on pharmaceuticals and consumer electronics, exposure to tariffs drops to 1.2% of GDP."
On fiscal policy, S&P noted better quality of government spending in recent five to six years. India's capital spending is seen increasing to Rs 11.2 trillion, or around 3.1% of GDP for FY26 from 2% of GDP a decade ago. Factoring in state-level spending, overall public investment in infrastructure works out at around 5.5% of GDP, comparable or better than peer sovereigns. We expect the enhanced infrastructure and connectivity in India to eliminate chokepoints that have prohibited long-term economic growth," S&P said.
S&P indicated that India's rating may further be upgraded when fiscal deficits narrow substantially and government debt declines below 60% of GDP on a structural basis. More infrastructure spending alongside fiscal measures may boost economic growth and improve public finances. In contrast, the rating may be downgraded if political commitment to fiscal consolidation declines.
India’s rating outlook was last raised to ‘Positive’ from ‘Stable’ in 2024, following a decade-long retention of the outlook at ‘Stable’ after it was upgraded from ‘Negative’. The long-term rating had remained at BBB- since its last upgrade in 2006.
