Context:

• S&P Global Ratings has upgraded India’s long-term sovereign credit rating from ‘BBB-’ to ‘BBB’, while the short-term rating has been raised from ‘A-3’ to ‘A-2’.

Key Highlights of the Report:

• Considering India’s rising financial capacity, the transfer and convertibility assessment has also been improved from ‘BBB+’ to ‘A-’.
• S&P last upgraded India’s rating to ‘BBB-’ in January 2007; hence, this upgrade has come after a gap of 18 years.
• High GDP Growth: Between FY2022 and FY2024, India’s real GDP growth averaged 8.8%, the highest in the Asia-Pacific region.
• S&P Estimate: Over the next three years, GDP growth is projected to average 6.8% annually, supporting moderation in the government’s debt-to-GDP ratio.
• Focus on Infrastructure: Investment in infrastructure has improved the quality of government expenditure. By FY2026, central government capital expenditure is expected to reach ₹11.2 trillion (3.1% of GDP).
• Public Investment: Including state governments, total public investment is estimated at about 5.5% of GDP, comparable to or higher than several peer countries.
• Driver of Growth: Infrastructure and connectivity investments are expected to ease bottlenecks that earlier constrained long-term economic growth.
• Monetary Policy Reforms: Especially the shift towards inflation targeting has stabilized price expectations.

India’s Fiscal Deficit Scenario:

• General Government Deficit: Expected to decline from 7.3% of GDP in FY2026 to 6.6% by FY2029.
• Infrastructure Financing: The government has successfully financed large infrastructure investments without widening the current account deficit, thereby strengthening fiscal credibility.
• Central Government Deficit:

• • FY2025: 4.8% of GDP
  • FY2026 Target: Reduced to 4.4% of GDP
• State Government Deficit: Expected to average 2.7% of GDP over the next 3–4 years.
• Combined Deficit (Centre + States): Projected to gradually decline to 6.6% of GDP by FY2029.
• Debt Scenario: According to S&P, the change in net debt is estimated at 7.8% of GDP, a significant improvement compared to 9%–13% during the pandemic years.
• Debt Sustainability & Inflation: S&P Global emphasized that India’s strong economic growth and robust policy framework have strengthened the country’s credit profile while keeping inflation under control. As a result, India’s sovereign credit rating has been upgraded from ‘BBB-’ to ‘BBB’.

India’s Monetary and Economic Position:

• Economic Expansion: Strong growth has improved India’s debt standards, laying a solid foundation for sustainable growth over the next 2–3 years.
• Inflation Management: Monetary policy settings have become more effective in stabilizing expectations.
• External Position: India’s external position remains strong; net external asset balance is normal.
• Current Account Deficit: Stable domestic demand and a slightly weaker rupee are expected to keep the deficit low, enhancing export competitiveness.
• RBI’s Role:

• • Since 2015, inflation has been kept within the medium-term target band of 2–6%.
  • CPI inflation has averaged 5.5% over the past three years.
  • In July 2025, core CPI inflation fell to 1.6% (from 2.1% in June).
• Monetary Easing: In February 2025, the RBI initiated monetary easing, cutting the policy repo rate by a cumulative 100 basis points to 5.5%.

S&P Global Ratings

• Founded: 1860 (as Standard & Poor’s)
• Headquarters: New York, USA
• Ownership: S&P Global Inc.
• Nature: One of the world’s leading credit rating agencies
• Other Major Agencies: Moody’s, Fitch Ratings

Functions:

• Credit Ratings: Assessing the creditworthiness of countries, companies, banks, and financial institutions.
• Rating Scale:

• • Investment Grade → AAA, AA, A, BBB
  • Speculative Grade → BB, B, CCC, CC, C, D
• Economic Analysis: Publishing reports and outlooks on GDP, fiscal deficit, inflation, etc.
• Investor Guidance: Helping investors assess risk and stability.

Credit Ratings – ‘BBB’ and ‘A-2’

‘BBB’ Rating (Long-Term Rating):

• A long-term credit rating, placed under S&P’s Investment Grade category.

Meaning:

• BBB / BBB+ / BBB- indicates that an entity or country is capable of meeting its debt obligations, but its financial position is not very strong.
• Considered the lowest level of Investment Grade.
• Ratings below this (BB, B, CCC, etc.) fall under Speculative or Junk grade.

In simple terms: ‘BBB’ means investment is safe, but the economy may be vulnerable to shocks.

‘A-2’ Rating (Short-Term Rating):

• A short-term credit rating used by S&P for Short-Term Issue Credit Ratings.

Meaning:

• A-1 = Strongest short-term capacity.
• A-2 = Good capacity to meet short-term obligations, but dependent on economic conditions (e.g., may weaken in case of recession or financial crisis).
• A-3 and below → weaker categories.

In simple terms: ‘A-2’ means the country/company can repay short-term debt, but it is not in the strongest category (A-1).