India's long-term growth potential is still robust despite the recent spike in U.S. tariffs, as the government keeps pressing forward with reforms and enhancing living standards, S&P Global Ratings said.
The international rating agency upgraded India's long-term sovereign credit rating on Tuesday to "BBB" with a stable outlook, the first such upgrade in 18 years. The move, S&P said, was prompted by strong economic performance, fiscal consolidation, and a monetary policy regime that has proved useful in containing inflation.
Predicting steady momentum, S&P estimated India's economy to grow at an average 6.8% per annum in the next three years, driven by robust domestic demand. The agency also pointed out that continued upgrading of infrastructure and connectivity would help ease structural bottlenecks and further lift the country's long-term growth trajectory.
India has outperformed a lot of its regional peers over the last three to four years, and it is among the strongest economies in the world," said S&P Global Ratings Director YeeFarn Phua. He stressed that prolonged reforms, investments in infrastructure, and fiscal discipline will be important to continue this pace.
S&P Asia-Pacific Economist Vishrut Rana explained that India's relatively low dependence on international trade insulates it from the negative effects of recent U.S. tariff increases.
The upgrade is the latest move following S&P's previous decision in May 2024 to change India's outlook from "stable" to "positive," indicating potential for a rating upgrade if fiscal deficits were further reduced.
In its recent note, S&P stated the stable outlook indicates policy continuity confidence, investment-driven through infrastructure, and prudent fiscal and monetary management that will cut down on the government's high debt and interest burden over the next two years.
As part of the sovereign upgrade, the agency also changed India's short-term rating from A-3 to A-2 and upgraded the transfer and convertibility assessment to BBB+ to A-.
Apart from this, S&P raised three NBFCs' long-term issuer credit ratings—Bajaj Finance, Tata Capital, and L&T Finance—and seven large Indian banks, viz., the State Bank of India, HDFC Bank, ICICI Bank, Axis Bank, Union Bank of India, Indian Bank, and Kotak Mahindra Bank.
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