S&P Global upgrades India’s ratings to ‘BBB’ from ‘BBB-’; outlook stable

S&P Global Ratings upgraded India’s ratings from ‘BBB-’ to ‘BBB’. The rating agency raised the long-term unsolicited sovereign credit ratings to ‘BBB’, while its short term ratings were raised to ‘A-2’ from ‘A-3’. The outlook on the long term rating is stable, it said.

The rating agency, at the same time, revised its transfer and convertibility assessment to ‘A-’ from ‘BBB+’.

“The stable outlook reflects our view that continued policy stability and high infrastructure investment will support India's long-term growth prospects. That along with cautious fiscal and monetary policy that moderates the government's elevated debt and interest burden will underpin the rating over the next 24 months,” it said.

The rating agency, however, cautioned that it might lower ratings if they observe an erosion of political commitment to consolidate public finances. There also could be downward pressure emerging from India’s economic growth slowing materially on a structural basis.

It added that the ratings may be raised if fiscal deficit narrows meaningfully so as to drop the general government debt below 6 per cent of the GDP on a structural basis. “The protracted rise in public investment in infrastructure will lift economic growth dynamism that, combined with fiscal adjustments, would alleviate India's weak public finances,” it said.

S&P says the upgrade reflects its buoyant economic growth against the backdrop of an enhanced monetary policy environment, government’s commitment to fiscal consolidation and efforts to improve spending quality.

“India remains among the best performing economies in the world. It staged a remarkable comeback from the pandemic with real GDP growth over fiscal 2022 (year-end March 31) to fiscal 2024 averaging 8.8 per cent, the highest in Asia-Pacific. We expect these growth dynamics to continue in the medium term, with GDP increasing 6.8 per cent annually over the next three years. This has a moderating effect on the ratio of government debt to GDP despite still-wide fiscal deficits,” it said.