ECONOMY
A long-awaited rating upgrade is good, but it is time for government to upgrade economy
- IBJ Bureau
- Sep 04, 2025
After 18 long years, S&P Global has upgraded India’s sovereign rating to BBB from BBB-. The rating upgrade signals confidence in the country’s resilience, fiscal discipline and growing global stature. The timing of the upgrade is significant, as it rebuts US President Donald Trump’s recent dismissal of India as a “dead economy”. The New York-based rating agency’s upgrade, accompanied by a stable outlook, positions India as one of the best-performing economies in the world.
The Indian economy is certainly doing well virtually on every front. The country’s finances have recovered dramatically from the COVID-19 shock. The combined fiscal deficit of the Centre and the States has shrunk quite promisingly from 9.45 per cent in FY22 to a projected 7.48 per cent in FY26. Despite staying on the path of fiscal consolidation, the government has continued to spend on capital expenditure, enhancing the quality of expenditure.
The fiscal prudence has played its part in reining in inflation and allowing interest rates to trend down. Besides, debt servicing would also fall with the cost of borrowings for the government coming down. In fact, the Central government’s debt-to-GDP ratio has dropped rather encouragingly from 89.50 per cent in FY21 to 80.7 0 per cent in FY25. The current account deficit is well within control and should remain that way. The rupee has understandably depreciated over the past few months. However, India’s huge foreign exchange reserves of over $690 billion are more than reassuring.
Interestingly, India is the only large economy growing at a brisk pace of over 6 per cent after recovering swiftly from the viral pandemic. In a forecast that probably surpasses those of most economists, S&P expects India’s GDP to grow by 6.8 per cent annually over the next three years. And should the growth sustain, the government’s balance sheet would be stronger, as the debt-to-GDP ratio is likely to fall further. These sound fundamentals and the potential for the growth momentum to sustain for a long time have convinced S&P to revise its rating on India.
The rating agency rightly believes that the US’ punitive tariffs on India – taking the total levy to 50 per cent – can be easily managed because of the latter’s limited reliance on trade and the dominance of domestic demand in its economy. In fact, S&P is of the view that the fiscal cost of India substituting Russian oil imports would be modest.
The rating upgrade puts India on a par with Indonesia and Mexico. In fact, S&P’s rating category of BBB for India has not changed, while it has only been upgraded from negative to stable. Despite the upgrade, India still remains at the lowest level of investment in the BBB zone. Fitch has rated India at BBB- since 2006, while Moody’s has had a Baa3 rating in place since June 2020.
The upgrade does facilitate India to access global credit at lower rates of interest. It would also fetch India a bigger weight in emerging market bond indices, enabling more portfolio flows into the country’s debt markets. Cheaper capital would help India Inc – particularly, the blue-chip companies – to fatten their balance sheets.
Yet, there is no guarantee that their rosy balance sheets would translate into more jobs. For over three years now, India’s consumption rate has been sliding, and meaningful job creation has been a mirage. Moreover, crores of small enterprises and industries – the real engines of growth for jobs and consequently the economy – are struggling for credit and to stay afloat. The rating upgrade hence is only a feel-good factor at best. And the government has a lot to do to upgrade the economy.
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