S&P Raises India’s Credit Rating to 'BBB' from 'BBB-', Says US Tariff Impact 'Manageable'

India’s long-term sovereign credit rating has been upgraded by S&P Global to ‘BBB’ from ‘BBB-‘, the credit ratings agency said in an official statement on August 14. The agency attributed this growth to the country’s economic resilience and sustained fiscal consolidation.

The stable outlook reflects S&P’s 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 moderates the government’s elevated debt and interest burden will underpin the rating over the next 24 months,” the statement read.

The report highlighted India’s robust post-pandemic growth, noting that GDP expanded at an average rate of 8.8% between FY22 and FY24, the fastest in the Asia-Pacific region.  

The upgrade of India reflects its buoyant economic growth, against the backdrop of an enhanced monetary policy environment that anchors inflationary expectations. Together with the government's commitment to fiscal consolidation and efforts to improve spending quality, the rating agency believes that these factors have coalesced to benefit credit metrics.

According to S&P, 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.

“We expect 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,” it added.

S&P on US Tariffs

It further stated that the effect of US tariffs on the Indian economy will be manageable. India is relatively less reliant on trade and about 60% of its economic growth stems from domestic consumption.

“…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,” the agency said.

Though the US is India's largest trading partner, the agency does not expect the 50% tariffs (if imposed) to pose a material drag on growth. India's exports to the US constitute about 2% of GDP.

“Factoring in sectoral exemptions on pharmaceuticals and consumer electronics, the exposure of Indian exports subjected to tariffs is lower at 1.2% of GDP. Though this may eventually result in a one-off hit to growth, we envisage the overall impact to be marginal and will not derail India's long-term growth prospects,” it said.