S&P Upgrades India’s Sovereign Credit Rating to ‘BBB’

Context:

S&P Global upgraded India’s long-term sovereign credit rating from ‘BBB-’ to ‘BBB’ (investment grade), the first such upgrade after 18 years, citing robust growth, fiscal consolidation, and controlled inflation.

About S&P Global

One of the three major international credit rating agencies (along with Moody’s and Fitch).
Provides sovereign and corporate credit ratings to assess risk and creditworthiness.

India’s New Sovereign Rating

Long-term rating: Upgraded to ‘BBB’ (investment grade).
Short-term rating: Upgraded to ‘A-2’.
Transfer and convertibility assessment: Upgraded to ‘A-’ from ‘BBB+’.

Implications of ‘BBB’ Rating

Indicates adequate capacity to meet financial commitments, though sensitive to external shocks.
Boosts investor confidence, lowers sovereign borrowing costs, and improves India’s global financial image.

Key Drivers of Upgrade

Strong Economic Growth:
- Real GDP growth averaged 8% (FY22–FY24); projected at 6.8% annually for next three years.
Fiscal Stability:
- Central fiscal deficit projected to fall from 8% (FY25) to 4.4% (FY26).
- General government deficit to decline from 3% (FY26) to 6.6% (FY29).
Controlled Inflation:
- CPI inflation averaged 5% over past 3 years.
- Recently declined to 6% in July 2025, within RBI’s 2–6% target band.
Monetary Policy:
- RBI cut repo rate to 5% in Feb 2025, citing easing inflation.
External Stability:
- Current account deficit remains modest, rupee depreciation aiding exports, net external asset balance stable.