“India is prioritising fiscal consolidation, demonstrating the government’s political commitment to deliver sustainable public finances, while maintaining its strong infrastructure drive,” S&P said in a statement

New Delhi: In a landmark development, after 18 years, S&P Global Ratings upgraded India’s sovereign rating by a notch to ‘BBB’, citing buoyant economic growth against the backdrop of an enhanced monetary policy environment that anchors inflationary expectations.

S&P is the first global rating agency to upgrade India’s sovereign rating from the lowest investment grade of ‘BBB-‘.

“India is prioritising fiscal consolidation, demonstrating the government’s political commitment to deliver sustainable public finances, while maintaining its strong infrastructure drive,” S&P said in a statement on Thursday.

S&P Global Ratings raised its long-term unsolicited sovereign credit ratings on India to ‘BBB’ from ‘BBB-‘, and its short-term ratings to ‘A-2’ from ‘A-3’. The outlook on the long-term rating is stable, the US-based agency said in a statement.

The Ministry of Finance(MoF) has welcomed the decision by Standard & Poor’s (S&P) Global Ratings to upgrade India’s long-term sovereign credit rating to ‘BBB’ from ‘BBB-’ and its short-term rating to ‘A-2’ from ‘A-3’, with a Stable Outlook. The rating upgrade is a significant affirmation of India’s economic trajectory and prudent fiscal management.
In May 2024, the agency revised its outlook on India from ‘Stable’ to ‘Positive’, said the ministry.

Looking ahead, S&P projects GDP growth of 6.5 per cent in FY26 and a continued momentum over the next three years. The agency suggested that a narrowing fiscal deficit and continued public investment could support further positive rating actions. Recently, another rating agency, Morning Star DBRS had also upgraded India to “BBB” status, said the MoF.

India remains among the best-performing economies in the world, and “we expect growth dynamics to continue in the medium term”, with GDP increasing 6.8 per cent annually over the next three years, S&P Global said on Thursday.

“We forecast India’s real GDP growth at 6.5 per cent this year, which compares favourably with emerging market peers amid a broad global slowdown,” the global ratings agency said in a note.

“Robust economic expansion is having a constructive effect on India’s credit metrics, and we expect sound economic fundamentals to underpin growth momentum over the next two to three years. In addition, monetary policy settings have become increasingly conducive to managing inflationary expectations,” it noted.

“We believe the effect of US tariffs on the Indian economy will be manageable. India is relatively less reliant on trade and about 60 per cent of its economic growth stems from domestic consumption,” S&P said.

Though the US is India’s largest trading partner, S&P does not expect the 50 per cent tariffs (if imposed) to pose a material drag on growth, it added.

The quality of government spending has improved in the past five to six years. The current administration has increasingly shifted budget allocation to infrastructure spending. Capital expenditure (capex) of the Union government is scheduled to increase to Indian rupees (INR) 11.2 trillion, or about 3.1 per cent of GDP, in fiscal 2026, it said.

This is up from the 2 per cent of GDP from a decade before. Adding capital spending by states, total public investment in infrastructure is estimated at around 5.5 per cent of GDP, which is on par or higher than sovereign peers.

“We believe the improvements in infrastructure and connectivity in India will remove chokepoints, which are hindering long-term economic growth,” said the global ratings agency.

Monetary policy reform to switch to inflation targeting has reaped dividends. Inflationary expectations are better anchored than they were a decade ago. Between 2008 and 2014, India’s inflation reached double-digits on numerous occasions.

Sakshi Gupta, principal economist, HDFC Bank, said,“ The rating upgrade by S&P recognises the fiscal consolidation efforts by the government over the last few years and improving long-term growth prospects due the significant improvement in infrastructure, logistics and ease of doing business in the country. The rating upgrade is likely to be a positive not just for the bond market but medium term prospects of attracting foreign investments.”

Suvodeep Rakshit, chief economist, Kotak Institutional, commented, “The ratings upgrade from S&P reflects the impact of prudent fiscal policy. The central government’s quality of expenditure has improved along with a more long term focus on fiscal improvement by targeting debt.”

According the MoF, S&P in its report details the key strengths of the Indian economy, which have enabled India to stand out as one of the fastest-growing major economies globally, with real GDP growth averaging 8.8 per cent from FY22 to FY24, the highest in the Asia-Pacific region. Monetary policy reforms, particularly the adoption of an inflation-targeting regime, have anchored inflation expectations more effectively, the agency stated.

The MoF further said, S&P has also recognised that despite global headwinds and price shocks, India has demonstrated resilience by maintaining overall price stability. Monetary improvements, combined with the ongoing development of deep domestic capital markets, have created a more stable and supportive environment for the overall economic scenario. The report further observes that India’s external and financial positions remain strong and the democratic institutions continue to ensure policy continuity and long-term economic stability.

Agencies