India's credit rating upgrade to boost investors' confidence, drive foreign capital inflows

New Delhi, Aug 16 (IANS) The upgrade of India’s sovereign credit rating by S&P Global underscores the nation’s strong economic fundamentals, disciplined fiscal management, and effective monetary policies, an official statement said on Saturday.

S&P Global has raised India’s long-term sovereign credit rating to 'BBB' from 'BBB-', with the short-term rating upgraded to 'A-2' from 'A-3'. The stable outlook reflects confidence in India’s strong economic fundamentals and prudent policy management.

The transfer and convertibility assessment has also been improved to 'A-' from 'BBB+', recognising India’s growing financial resilience. S&P last upgraded India in January 2007 to ‘BBB-’, hence, this rating upgrade comes after an 18-year gap.

“It reflects confidence in India’s ability to sustain growth, manage inflation, and invest in infrastructure while maintaining financial stability. This milestone highlights the government’s commitment to long-term prosperity and positions India as a resilient and attractive destination for global investment,” the statement said.

The improved rating is expected to reduce sovereign borrowing costs and strengthen investor confidence, leading to higher inflows of foreign capital.

This, in turn, will create a more stable environment for financing public and private sector investments, thereby supporting infrastructure development, employment generation, and broad-based economic growth in the years ahead.

S&P Global notes that India remains among the best performing economies in the world, showing strong resilience and sustained growth since the pandemic.

Real GDP growth averaged 8.8 per cent between fiscal 2022 and fiscal 2024, the highest in the Asia-Pacific region. S&P projects annual GDP growth of 6.8 per cent over the next three years, supporting a moderation in the government debt-to-GDP ratio.

Government spending quality has improved, with a focus on infrastructure investment. Union government capital expenditure is expected to reach Rs 11.2 trillion (3.1 per cent of GDP) by fiscal 2026.

“Total public investment in infrastructure, including state governments, is estimated at around 5.5 per cent of GDP, matching or exceeding many peer countries. Infrastructure and connectivity investments are expected to remove bottlenecks that previously limited long-term economic growth. Monetary policy reforms, particularly the shift to inflation targeting, have stabilised price expectations,” according to the official statement.

S&P Global also observes that the Indian government is following a clear and gradual path towards fiscal consolidation, strengthening the country’s economic stability and credibility.

The general government deficit, which measures the gap between total government spending and revenue, is projected to decline from 7.3 per cent of GDP in fiscal 2026 to 6.6 per cent by fiscal 2029. The provisional fiscal deficit of the central government for fiscal 2025 stood at 4.8 per cent of GDP, while the Union Budget has further reduced the target to 4.4 per cent of GDP for fiscal 2026.

State government deficits are expected to average 2.7 per cent of GDP over the next three to four years.

S&P Global highlights that India’s strong economic growth and sound policy framework have strengthened the country’s credit profile while keeping inflation under control.

--IANS

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