On the eve of India celebrating its 79th Independence Day, international ratings agency S&P Global Ratings has upgraded the sovereign credit rating of the world’s fourth-largest economy. The rating has been lifted to ‘BBB’ from ‘BBB-’, and the agency has said the outlook for the economy is “stable”. But what does all of it mean?
A credit rating is like a report card for a country’s financial health. A better grade means the world sees India as a safer and more reliable place to invest and lend money.
Therefore, this upgrade by S&P Global Ratings is a sign of confidence in the Indian economy’s direction.
How did India get good marks?
S&P Global Ratings, in its announcement, pointed to several key reasons for the positive assessment.
It noted that India’s economic growth is booming. While many countries are slowing down, India’s economy has been one of the best performers in the world. S&P Global Ratings expects this strong performance to continue, forecasting a healthy annual growth of about 6.8 per cent over the next three years. This growth is mainly powered by Indians buying things right here at home (domestic consumption), making the economy less dependent on global trade ups and downs.
Moreover, the ratings agency noted that the government spending has gotten smarter recently, with a clear shift towards investing more money in building long-term assets like roads, ports, and railways. This infrastructure spending, which is now around 3.1 per cent of our GDP, is crucial because it removes bottlenecks and helps the economy grow more efficiently in the long run.
The cherry on top? The Reserve Bank of India (RBI)’s marvellous job of controlling inflation. Unlike a decade ago when prices often shot up into double digits, inflation has been kept mostly within the RBI’s target range of 2 to 6 per cent. This price stability makes the economy more predictable for both citizens and businesses.
What it means for the common Indian
This improved credit rating comes with real-world benefits for the country’s population. A better rating makes India a more attractive destination for foreign money (despite the recent FII selloffs). It signals to international investors that the country’s finances are on a solid footing.
Over time, this could lead to cheaper loans, increased FDI, and an overall jump in India’s brand value on the global stage.
Cheaper loans: The government and Indian companies could now find it easier and cheaper to borrow money from foreign markets and institutions like the World Bank and ADB. This directly translates to better mega projects and infrastructure.
Increased foreign investment: Global giants could invest more in India and set up units (like the iPhone factory), leading to more jobs and opportunities.
However, the biggest benefit is the vote of confidence in India’s economic policies, which were recently under fire by US President Trump. But rating agencies like S&P think otherwise.
“India has a mature democracy, with a vibrant media and outspoken business community. There is a tradition of orderly transfers of power, supported by stable and mature institutions,” it noted.
All is not hunky dory
While the news is overwhelmingly positive, S&P Global Ratings also mentioned that the Centre still has a large amount of debt and a high budget deficit.
The agency stressed the importance of the government continuing its careful approach to spending and working to reduce this debt over time. The “stable” outlook means S&P believes India will continue on this path for the next two years.
This upgrade is a significant milestone, yes. And it confirms that India’s economic engine is firing on all cylinders. But now, the Modi-led Indian government will have to maintain this momentum, despite the latest wave of trade skirmishes with the US.
