India's recent promotion to a "BBB" rating by S&P indicates acknowledgment of its macroeconomic strength, but the rating continues to be a poor representation of the country's true credit position, a report pointed out on Wednesday.
"As compared to BBB and even A-rated peers, India’s growth trajectory, fiscal consolidation, external resilience, banking stability, and institutional credibility present a much stronger macro profile," MP Financial Advisory Services said in its report.
The report contended that these pillars of strength imply India's creditworthiness is already comparable with higher-rated sovereigns, and the question was raised whether the BBB status reflects accurately its actual financial position.
“When assessed across growth, debt sustainability, external resilience, banking stability, and institutional credibility, India’s fundamentals not only compare favourably but, in several respects, outperform higher-rated economies," said Mahendra Patil, Founder and Managing Partner, MP Financial Advisory Services LLP.
He further said the current BBB rating "understates India's true credit strength, which already closely matches those of higher-rated peers along various dimensions."
In the past decade, India has steadily recorded 6–7 per cent real GDP growth, a rate matched by few BBB-rated and even a number of A-rated economies, which generally average no more than 2–3 per cent.
The country's resilience has similarly stood the test of successive world shocks, such as the 2008 financial meltdown, the 2013 taper tantrum, the COVID-19 pandemic, and serial commodity price spikes. While its advanced counterparts often lagged under the strain, India has been able to maintain overdrive.
Despite India's debt-to-GDP level at 81–82 per cent, it is stable, with the IMF projecting a drop to 78 per cent by FY2029. This is relatively better compared to various higher-rated nations: Italy (135 per cent), France (110 per cent), Belgium (104 per cent), and Japan (235 per cent). Even countries with lower ratios, such as Germany (63 per cent) and Canada (69 per cent), are subject to less favorable growth trajectories that make their debt harder to reduce.
The report also picked up on India's nominal GDP growth rate of 10–11 per cent, which convincingly surpasses its effective interest costs of 6–7 per cent, creating a growth–interest rate differential that is positive. This position enables India to "grow out of debt" in the long run, while in most developed economies, weak growth prevents their debt reduction.
"India is increasingly channelling fiscal resources into capital expenditure. The capex has risen from 12 per cent of the Union budget in FY2019 to 23 per cent in FY2025," the report said.
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