Page 40 - The Indian EYE 082225

The Indian Eye
BUSINESS & TRADE AUGUST 22, 2025 40

S&P Upgrade Signals India’s

Economic Strength, Sets Stage

for Surge in FDI

India’s first sovereign credit rating upgrade in 18 years has reinforced confidence in its economic fundamentals, with

experts predicting stronger foreign investment inflows and lower borrowing costs for both government and corporates.

OUR BUREAU
Mumbai
n a landmark development for Asia’s third-larg-
est economy, S&P Global Ratings has upgrad-
Ied India’s long-term sovereign credit rating
from BBB- to BBB and the short-term rating from
A-3 to A-2, marking the country’s first such boost
since 2007. The stable outlook attached to the rat-
ing underscores optimism around policy continui-
ty, robust economic growth, and disciplined fiscal
management.
The Ministry of Finance hailed the upgrade
as a reaffirmation that, under Prime Minister Na-
rendra Modi’s leadership, the economy remains
“agile, active, and resilient,” even amid a turbulent
global environment. The government’s focus on
fiscal discipline, infrastructure expansion, and in-
clusive growth was credited as a key driver of the
improved rating.
Economists and market experts say the move
could be a catalyst for stronger foreign capital in-
flows, particularly into debt markets. Sonal Bad-
han, Economist at Bank of Baroda, predicted a no- Rishi Shah, Partner at Grant Thornton Bharat, a developed nation by 2047 — the centenary of
table uptick in foreign portfolio investment (FPI) described the move as “long overdue,” while Man- its independence. Union Commerce and Industry
this year, alongside a drop in bond yields. “The up- oranjan Sharma, Chief Economist at Infomerics Minister Piyush Goyal said it validated the “un-
grade reaffirms trust in India’s sound fundamentals Ratings, said it was a “recognition of India’s growing wavering commitment” to bettering the lives of
and growth momentum. The impact will be almost financial clout on the global stage.” Sharma stressed all Indians through inclusive growth and econom-
immediate, with government and corporate bor- that the improved rating will lower international ic resilience.
rowing costs set to fall,” she said, noting that 10- borrowing costs, benefiting both the government S&P’s stable outlook signals its expectation
year government bond yields had already dipped and private sector firms that raise funds abroad. that India will maintain policy stability, continue
by 8 basis points following the announcement. Government data shows India attracted USD its infrastructure push, and keep public finances
The upgrade follows a similar boost earlier this 81.04 billion in FDI in FY 2024-25, a 14% rise from on a sustainable trajectory. These elements, com-
year from DBRS Morningstar, which also raised the previous year. Analysts expect the upgraded bined with a stable external sector, robust foreign
India’s rating to BBB. Together, the moves reflect rating to accelerate this trend, especially in sectors exchange reserves, and a strong banking system,
a growing recognition of India’s economic resil- such as infrastructure, manufacturing, and tech- provide what the agency described as a “solid plat-
ience and could encourage other agencies, such as nology, where India has been aggressively courting form for long-term growth.”
Moody’s and Fitch, to follow suit. overseas investors. Experts say the rating boost comes at a critical
S&P cited high infrastructure investment, im- While the Reserve Bank of India’s latest finan- moment, with global investors seeking stable, high-
proved monetary conditions, and targeted fiscal cial account data showed a small net FDI outflow growth markets amid geopolitical and economic
spending as factors behind the upgrade. It also re- in Q2 FY 2024-25, the new rating could help re- uncertainty. India’s demographic advantages, do-
vised India’s transfer and convertibility assessment verse this pattern by bolstering investor sentiment. mestic consumption base, and ongoing structural
to A- from BBB+, pointing to better external sta- Badhan noted that the government is unlikely to reforms position it as a preferred investment desti-
bility and a more robust financial framework. use the upgrade as a reason to expand borrowing, nation in the years ahead.
For Sanjeev Sanyal, Member of the Prime given its commitment to gradually reducing the As global capital flows shift, the S&P decision
Minister’s Economic Advisory Council, the change debt-to-GDP ratio. could be the signal many institutional investors
was “much required,” noting that his own mod- “This is about building credibility for the long were waiting for. With two upgrades in the span
els had long suggested India deserved a higher term,” she said. “The fiscal deficit is on track for of a year, a track record of fiscal prudence, and
rating. “There was a gap of two notches between consolidation, but not at the cost of growth mo- growth projections outpacing most major econo-
what was being given and what was deserved,” he mentum. That’s a balance global investors respect.” mies, India’s economic foundation appears more
said, calling the decision a fair reflection of India’s The government has framed the upgrade as a secure than ever — and primed for the next wave
post-pandemic fiscal and monetary management. milestone in its vision of transforming India into of foreign investment.

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