India’s first sovereign credit rating upgrade in 18 years has reinforced confidence in its economic fundamentals, with experts predicting stronger foreign investment inflows and lower borrowing costs for both government and corporates
Our Bureau
Mumbai
In a landmark development for Asia’s third-largest economy, S&P Global Ratings has upgraded India’s long-term sovereign credit rating from BBB- to BBB and the short-term rating from A-3 to A-2, marking the country’s first such boost since 2007. The stable outlook attached to the rating underscores optimism around policy continuity, robust economic growth, and disciplined fiscal management.
The Ministry of Finance hailed the upgrade as a reaffirmation that, under Prime Minister Narendra Modi’s leadership, the economy remains “agile, active, and resilient,” even amid a turbulent global environment. The government’s focus on fiscal discipline, infrastructure expansion, and inclusive growth was credited as a key driver of the improved rating.
Economists and market experts say the move could be a catalyst for stronger foreign capital inflows, particularly into debt markets. Sonal Badhan, Economist at Bank of Baroda, predicted a notable uptick in foreign portfolio investment (FPI) this year, alongside a drop in bond yields. “The upgrade reaffirms trust in India’s sound fundamentals and growth momentum. The impact will be almost immediate, with government and corporate borrowing costs set to fall,” she said, noting that 10-year government bond yields had already dipped by 8 basis points following the announcement.
The upgrade follows a similar boost earlier this year from DBRS Morningstar, which also raised India’s rating to BBB. Together, the moves reflect a growing recognition of India’s economic resilience and could encourage other agencies, such as Moody’s and Fitch, to follow suit.
S&P cited high infrastructure investment, improved monetary conditions, and targeted fiscal spending as factors behind the upgrade. It also revised India’s transfer and convertibility assessment to A- from BBB+, pointing to better external stability and a more robust financial framework.
For Sanjeev Sanyal, Member of the Prime Minister’s Economic Advisory Council, the change was “much required,” noting that his own models had long suggested India deserved a higher rating. “There was a gap of two notches between what was being given and what was deserved,” he said, calling the decision a fair reflection of India’s post-pandemic fiscal and monetary management.
Rishi Shah, Partner at Grant Thornton Bharat, described the move as “long overdue,” while Manoranjan Sharma, Chief Economist at Infomerics Ratings, said it was a “recognition of India’s growing financial clout on the global stage.” Sharma stressed that the improved rating will lower international borrowing costs, benefiting both the government and private sector firms that raise funds abroad.
Government data shows India attracted USD 81.04 billion in FDI in FY 2024-25, a 14% rise from the previous year. Analysts expect the upgraded rating to accelerate this trend, especially in sectors such as infrastructure, manufacturing, and technology, where India has been aggressively courting overseas investors.
While the Reserve Bank of India’s latest financial account data showed a small net FDI outflow in Q2 FY 2024-25, the new rating could help reverse this pattern by bolstering investor sentiment. Badhan noted that the government is unlikely to use the upgrade as a reason to expand borrowing, given its commitment to gradually reducing the debt-to-GDP ratio.
“This is about building credibility for the long term,” she said. “The fiscal deficit is on track for consolidation, but not at the cost of growth momentum. That’s a balance global investors respect.”
The government has framed the upgrade as a milestone in its vision of transforming India into a developed nation by 2047 — the centenary of its independence. Union Commerce and Industry Minister Piyush Goyal said it validated the “unwavering commitment” to bettering the lives of all Indians through inclusive growth and economic resilience.
S&P’s stable outlook signals its expectation that India will maintain policy stability, continue its infrastructure push, and keep public finances on a sustainable trajectory. These elements, combined with a stable external sector, robust foreign exchange reserves, and a strong banking system, provide what the agency described as a “solid platform for long-term growth.”
Experts say the rating boost comes at a critical moment, with global investors seeking stable, high-growth markets amid geopolitical and economic uncertainty. India’s demographic advantages, domestic consumption base, and ongoing structural reforms position it as a preferred investment destination in the years ahead.
As global capital flows shift, the S&P decision could be the signal many institutional investors were waiting for. With two upgrades in the span of a year, a track record of fiscal prudence, and growth projections outpacing most major economies, India’s economic foundation appears more secure than ever — and primed for the next wave of foreign investment.
