Fun with flags
| Photo Credit:
Iurii Garmash
S&P Global on Thursday retained India’s sovereign rating at ‘BBB’ with stable outlook. It expects expect India’s strong growth dynamics to continue in the medium term.“India remains among the best performing economies in the world. It averaged annual growth of 7.9 per cent in the last five years over fiscal 2022 (year-ended March 31, 2022) and fiscal 2026. We forecast growth to fall to 6.6 per cent this fiscal year on account of an ongoing energy shock and challenging agricultural conditions. But we expect India’s strong growth dynamics to continue in the medium term with GDP growth averaging 7 per cent annually over the next three years,” the agency said while adding such a trend has a moderating effect on the ratio of government debt to GDP despite wide fiscal deficits.In 2025, after a gap of 18 years, the upgrade India’s long-term sovereign credit rating to ‘BBB’ from ‘BBB-’ with stable outlook. A ‘BBB’ credit rating represents an adequate capacity to meet financial commitments, but it is more subject to adverse economic conditions. This rating is considered investment grade, indicating moderate risk. Entities rated BBB are viewed as having a reasonable likelihood of fulfilling their obligations, but investors should be aware that economic shifts could impact their financial stability.Policy stabilityTalking about ‘Stable Outlook’, the agency said it reflects its view that continued policy stability and high infrastructure investment will support India‘s long-term growth prospects. That, along with stable fiscal and monetary policies that moderate the government’s elevated debt and interest burden, will underpin the rating over the next 24 months, it added.The agency emphasised that rural economy will be affected by lower rainfall from El Nino and volatile input costs driven by the West Asian war. The agriculture sector accounts for about 18 per cent of the Indian economy and employs 43 per cent of the workforce. But “economic diversification in recent years toward services such as finance and technology, infrastructure investment, and manufacturing, will act as stabilizers to cushion the effect of weak monsoon,” it said.However, it has some concern on fiscal setting which has been termed as ‘weakest part of its sovereign ratings profile.’ With economic recovery now on track, the government can depict a more concrete (albeit gradual) path to fiscal consolidation.India‘s current Union Budget reinforces our expectation of gradual fiscal consolidation. However, “we expect the impact of an excise duty reduction on fuel along with a potentially higher fertilizer subsidy bill to weigh marginally on the fiscal deficit this year. On a general government level, our projections indicate a deficit of 7.3 per cent of GDP in fiscal 2027, and for this to decline to 6.6 per cent by fiscal 2030,” it said.On Inflation, it said that inflation began rising in recent months reaching 4.4 per cent in June driven by food inflation and high energy prices. Food accounts for about 37 per cent of India‘s CPI basket. It has, however, stayed within the RBI’s target range of 2 per cent-6 per cent and ”we expect it to remain so over the next three to four years,” it said.Published on August 27, 2026
