Blitz Bureau
NEW DELHI: India’s long wait for a sovereign ratings upgrade has finally ended. On August 15, Standard & Poor’s raised India’s long-term sovereign credit rating to BBB with a Stable Outlook, from BBB- earlier, and upgraded the short-term rating from A-3 to A-2. It is the country’s first such upgrade in 18 years and comes at a time when global financial markets are closely watching how New Delhi navigates a more turbulent global trade and investment environment.
S&P justified the move by pointing to India’s “buoyant and dynamic economic growth, sustained commitment to fiscal consolidation, improved quality of public spending, particularly on capital expenditure and infrastructure, and credible inflation management.” It also cited policy predictability and the resilience of domestic capital markets as key reasons for its decision.
The numbers strengthen S&P’s case. India’s real GDP growth averaged 8.8 per cent between FY22 and FY24, the fastest in the Asia-Pacific region, and significantly higher than most other large emerging markets. S&P projects growth to be moderate but robust at 6.5 per cent in FY26, with momentum expected to be sustained over the medium term. A large domestic consumption base and deepening industrial capacity are highlighted as buffers against external headwinds, including the impact of the recent US tariff hikes on Indian exports.
The upgrade moves India higher in the global ratings table, bringing it on a par with peers such as Indonesia and Mexico. Analysts say the shift reduces sovereign risk premiums and could lower borrowing costs across the economy. “India’s fundamentals already justified a stronger rating,” said Kunal Kundu, India economist at Société Générale. “The upgrade was long overdue.”
Market economists and policy analysts across the board endorsed S&P’s decision. Suvojdeep Rakshit of Kotak Institutional Equities said the upgrade acknowledged the Government’s steady fiscal consolidation and sharper focus on productive expenditure, especially infrastructure.
Gaura Sen Gupta of IDFC First Bank noted that India compares favorably with other BBB-rated economies on growth, inflation, and external stability, while Sakshi Gupta of HDFC Bank stressed the role of reforms in logistics and infrastructure in bolstering the growth outlook.
Radhika Rao of DBS Bank pointed out that aligning India with peers like Mexico and Indonesia would have tangible benefits, not only in terms of perception but also in cutting risk spreads on debt. NR Bhanumurthy, Vice-Chancellor of the Madras School of Economics, described the decision as “extremely well-timed,” providing confidence when India faces new tariff and trade pressures abroad.
For New Delhi, the S&P decision validates nearly a decade of reform efforts that began with the goods and services tax, corporate tax rationalisation, insolvency reforms, and most recently, a push for large-scale public infrastructure investment. The Government has consistently emphasised capital expenditure as a growth driver while keeping fiscal deficits on a declining path. The rating upgrade reinforces the credibility of this fiscal strategy, even as India’s deficit and debt ratios remain higher than those of many peers.
India gets a BBB upgrade from S&P; return to higher credit league
Monetary policy credibility has also played a role. Since adopting an inflation-targeting regime in 2016, India has managed to anchor expectations despite global commodity shocks. S&P acknowledged that the Reserve Bank of India’s framework, coupled with a flexible exchange rate, provides resilience against sudden capital flow volatility.
The immediate market reaction of the upgrade was positive. Government bond yields fell by up to 10 basis points on expectations of stronger foreign demand, while corporate bonds are also likely to benefit from lower risk spreads. Equity investors too see a confidence boost.
Portfolio managers have long argued that India’s fundamentals are under-represented in global indices because of its relatively low rating. The upgrade may provide fresh momentum for its inclusion in more global bond indices, which could significantly increase passive flows into the country.
The S&P move does not stand in isolation. Earlier in May, Morningstar DBRS had upgraded India to BBB from BBB (low), citing structural reforms, improved fiscal performance, and a more resilient financial system. It also noted India’s robust growth prospects and inflation-management framework as key strengths. With two agencies now aligning on an improved view, the case for stronger foreign investor confidence becomes harder to ignore.
Yet, challenges remain. India still carries a relatively high debt-to-GDP ratio, fiscal consolidation targets remain ambitious, and external vulnerabilities persist in the form of a large dependence on imported energy. Moreover, while the Government’s infrastructure push has bolstered medium-term prospects, sustaining 6-7 per cent growth will require private investment to accelerate more meaningfully.
For the Government, the timing of the S&P move could not be better. With global investors rebalancing away from China and looking for large, stable alternatives, India’s improved rating provides a stronger case to attract long-term capital. It also enhances the country’s negotiating position in trade and investment talks.
For markets, the implications are immediate: lower yields, potential inclusion in global indices, and cheaper funding for Indian corporates. For policymakers, the challenge is longer term: to translate this recognition into sustained investment flows, job creation, and export expansion.