GS3 – Indian Economy
Context:
S&P Global Ratings recently upgraded India’s sovereign credit rating from BBB- to BBB, reflecting improved creditworthiness and debt repayment capacity. Sovereign ratings assess a country’s ability to meet financial obligations.
Key Drivers:
- Fiscal Consolidation: Fiscal deficit reduced from 9.2% (FY21) to 4.4% (FY26), approaching the FRBM target of 3%.
- Growth Resilience: India remains one of the fastest-growing major economies, with FY25 GDP growth at 6.5%.
- Price Stability: Headline inflation fell to 1.55% in July 2025, the lowest since mid-2017, strengthening investor confidence.
Significance for India:
- Historic Achievement: First upgrade in 20 years, signalling stronger economic fundamentals.
- Capital Access: Reduced borrowing costs and improved appeal to global investors.
- Market Impact: Bond yields fell and the rupee appreciated, reflecting greater investor confidence.
S&P Rating Scale & India’s Position:
- Ratings range from AAA (highest) to BBB (lowest investment grade); BBB indicates adequate repayment capacity with moderate vulnerability in adverse conditions.
- India now shares BBB with Greece, Mexico, and Indonesia, while the US remains at AA+.