S&P Global Upgrades India's Credit Rating

In a surprising turn of events, S&P Global, the US-based credit ratings agency, has upgraded India’s rating to ‘BBB’ from ‘BBB-’, citing several positive factors in favor of the world’s fifth-largest economy. This upgrade comes at a time when US President Donald Trump has imposed a 50% tariff on Indian exports to America, even labeling India as a ‘dead economy’.

S&P has stated that the impact of US tariffs is not likely to be extensive on India’s economy, highlighting India's buoyant economic growth and enhanced monetary policy environment as key factors behind the upgrade.

Why the Upgrade?

The upgrade reflects India's strong economic recovery from the pandemic, with real GDP growth averaging 8.8% from fiscal year 2022 to fiscal year 2024, the highest in the Asia-Pacific region. S&P anticipates this growth trend will continue, projecting a 6.8% annual GDP rise over the next three years.

Trump’s Tariffs: Minimal Impact

Contrary to fears, S&P believes the effect of US tariffs on the Indian economy will be manageable, given that about 60% of India's economic growth stems from domestic consumption. Exports to the US account for roughly 2% of India's GDP, with the affected portion decreasing to 1.2% considering sector exemptions.

The Road Ahead

India's sovereign ratings are supported by a vibrant economy, strong external balance sheet, and democratic institutions ensuring policy consistency. However, challenges remain, including high government debt levels and the need for sustained high growth rates to generate jobs and reduce inequality.