📰India's Credit Upgrade, Explained

Today is India’s 79th Independence Day; the entire nation has taken the day off to rejoice in celebrating the anniversary of fighting for and successfully forming the world’s largest democracy. Symbolically, the S&P’s credit upgrade for the country couldn’t have come at a better time. Today, we break down how India earned its first credit upgrade in nearly two decades, and analyze the work

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India’s First Credit Upgrade in Two Decades, Explained

On August 15, as India marked its 79th Independence Day, the financial world gave the nation a symbolic nod: S&P Global upgraded India’s sovereign rating to BBB from BBB–, while maintaining a stable outlook. It was the first such upgrade in 18 years, a rare intersection of national pride and global economic validation.

The upgrade wasn't a surprise to those who have watched closely, but it was still hard-earned. Real GDP growth averaged 8.8 percent between FY22 and FY24, the fastest among major Asia-Pacific economies. S&P forecasts that momentum will moderately ease to around 6.8 percent annually over the next three years. In inflation targeting, the RBI has anchored expectations, helping keep price pressures within manageable ranges. Meanwhile, the government’s financial strategy, pruning reliance on off-balance-sheet liabilities, tightening public expenditure, and reallocating toward capital investment, helped boost S&P’s confidence.

Statements from chief economists across the board reflected the sentiment. Kotak’s Suvodeep Rakshit emphasized “prudent fiscal policy” and better-quality expenditure; IDFC First’s Gaura Sen Gupta noted that India’s growth, inflation, and external accounts now compare favorably with its BBB peers. SocGen, HDFC, and others echoed these same structural improvements.

Still, this is far from a finishing line. S&P cautioned that the government must continue narrowing its fiscal gaps, specifically, reducing net change in general government debt to below 6 percentage points of GDP, to earn further upgrades. As of now, India’s debt-to-GDP ratio stands near 83 percent in FY25, with projections pointing toward 78 percent by FY29—a decline, but not yet a transformation.

Why the upgrade was so hard-fought: To understand why this upgrade felt more like a victory march than a checkpoint, it helps to zoom out. India’s macroeconomic trajectory long outpaced its rating. As Sujan Hajra from Anand Rathi put it: “India’s economic and financial dynamism has far outpaced its perceived credit risk”. Market flows, bond and equity rallies, FDI’s trillion-dollar journey, none of it was reflected in a multi-decade stagnant rating. Indeed, India only climbed to BBB– back in 2007, and never broke above it, until now.

Structural weaknesses slowed the upgrade, not weakness in growth, but in fiscal architecture. As Fitch’s Jeremy Zook highlighted earlier this year, high public debt, heavy interest-to-revenue servicing (~25 percent), and reliance on indirect fiscal tools create long-term constraints. India aims to bring debt-to-GDP down to a more palatable ~50 percent by March 2031, but fulfilling that relies on strong, sustained nominal growth and reform-focused spending.

In short, India’s economic engine has been outrunning its fiscal brakes, and stabilizing that mismatch has been slow work.

How much further to go? If BBB is the present, BBB+ or A– could be the next stops. But the markers ahead are fiscal, not just macro. S&P’s roadmap is clear:

• Debt dynamics: Bring the net increase in debt well below 6 percent of GDP consistently
  

• Interest burden: Reduce the interest-to-revenue ratio toward the BBB peer median (~8 percent)
  

• Expenditure shift: Maintain the tilt toward centered capital spending and away from subsidies
  

• Transparency and predictability: Keep improving off-budget clarity, budgetary norms, and fiscal rules
  

• Growth sustainability: Ensure that real GDP stays robust, even in global downturns.

Economics Secretary Anuradha Thakur hailed the upgrade as recognition of India’s discipline and resilience, while expressing hope that other rating agencies would follow S&P’s lead. And in a broader perspective, the upgrade did help markets breathe: immediately, the rupee appreciated slightly, and the 10-year government bond yield declined ~7 basis points to around 6.38 percent.

Why it matters. Beyond markets, the credit upgrade signals that India’s marriage of high-growth and debt discipline can attract global trust. That trust matters for mobilizing private infrastructure capital, improving bond market depth, and anchoring the reforms that will ultimately determine whether India can become a high-income economy by 2047.

What still needs to change: Here’s where it gets blunt: if India wants to convert this incremental victory into a tangible legacy, it needs to treat this upgrade not as reassurance, but as accountability. That means anchoring multi-year fiscal frameworks, because a rubber-band budget that springs back toward big spending in election years will sink credibility. It means deeper subsidy targeting, so that hybrid instruments like oil price buffers or fertilizer support evolve into calibrated, direct transfers. It also requires state alignment, since consolidated debt includes state debt, something a standalone fiscal council or stricter borrowing norms for states could help enforce. Structural revenue reforms are equally critical, expanding the tax base, not raising rates, through GST integration, compliance systems, and digital governance. Finally, India needs external smoothing: while domestic consumption has insulated it from U.S. tariffs, export diversification and external buffers must remain strong. Ultimately, a one-time upgrade is a milestone, but it is far from a destination.

See you Monday.

Written by Eshaan Chanda & Yash Tibrewal. Edited by Shreyas Sinha.

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