S&P upgrades India’s credit rating to BBB from BBB-, outlook stable

S&P Global Ratings has raised India’s long-term unsolicited sovereign credit rating to ‘BBB’ from ‘BBB-’ and the short-term rating to ‘A-2’ from ‘A-3’, with a stable outlook. The agency also revised India’s transfer and convertibility assessment to ‘A-’ from ‘BBB+’.

Why the Upgrade Happened

The upgrade reflects India’s buoyant economic growth, improving fiscal metrics, and strengthened monetary policy framework that has anchored inflation expectations. S&P noted the government’s political commitment to fiscal consolidation while maintaining a strong push for infrastructure development.

India has emerged as one of the best-performing economies globally, with average real GDP growth of 8.8% between FY22 and FY24. S&P projects growth to average 6.8% annually over the next three years, supported by domestic consumption and rising capital expenditure.

Fiscal and Policy Strengths

The government is on a gradual but clear path to narrowing fiscal deficits—from 7.3% of GDP in FY26 to 6.6% by FY29—while increasing the share of spending on infrastructure to 3.1% of GDP at the central level. Coupled with strong revenue collections, including GST and central bank dividends, this is expected to improve India’s debt profile, with net general government debt projected to decline to 78% of GDP by FY29.

Monetary Stability and Inflation Control

S&P highlighted the success of India’s inflation-targeting framework, noting that CPI growth has averaged 5.5% over the last three years despite global volatility. Headline inflation recently fell to 1.6% in July, allowing the Reserve Bank of India to cut policy rates by 100 bps this year.

Outlook

The stable outlook reflects expectations of continued policy stability, sustained infrastructure investment, and prudent fiscal and monetary management over the next two years.

• Upside: Ratings could rise further if fiscal deficits narrow to the point where net debt growth falls below 6% of GDP structurally.

• Downside: A reversal in fiscal consolidation or a structural slowdown in growth could trigger a downgrade.

This marks the first sovereign upgrade for India by S&P in over a decade, underscoring growing investor confidence in the country’s long-term economic resilience.

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