S&P Global Ratings has 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 agency said. The upgrade of India reflects its buoyant economic growth, against the backdrop of an enhanced monetary policy environment that anchors inflationary expectations. The sovereign ratings on India are anchored by a dynamic and fast-growing economy, strong external balance sheet, and democratic institutions that support policy predictability. Counterbalancing these strengths are the government's weak fiscal performance and burdensome debt stock, as well as low GDP per capita, the agency noted.
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%, the highest in Asia-Pacific. The agency expects these growth dynamics to continue in the medium term, with GDP increasing 6.8% annually over the next three years. This has a moderating effect on the ratio of government debt to GDP despite still-wide fiscal deficits. The effect of U.S. tariffs on the Indian economy will be manageable, S&P further noted. India is relatively less reliant on trade and about 60% of its economic growth stems from domestic consumption. We expect that in the event India has to switch from importing Russian crude oil, the fiscal cost, if fully borne by the government, will be modest given the narrow price differential between Russian crude and current international benchmarks, it said.