On August 14, after an 18-year gap, India’s sovereign credit rating was upgraded for the first time by S&P Global Ratings. The long-term sovereign credit rating was upgraded from BBB– to BBB, nudging the country a notch higher within the investment-grade bracket. The short-term ratings, and the transfer and convertibility assessment were also upgraded. On paper, this was a technical adjustment. In reality, it was a verdict on India’s resilience, reforms and readiness for the next stage of growth.
Credit ratings are the world’s shorthand for risk. They shape how much a country pays to borrow abroad, influence how global funds allocate their portfolios and signal to investors whether a nation is on the path of stability or vulnerability. In the years since 2007, the Indian economy endured the global financial crisis, the ‘taper tantrum’ in 2013, two currency crises in 2013 and 2018, a once-in-a-century pandemic and commodity shocks triggered by war. That India’s rating has finally moved up suggests that, despite all the turbulence, something about the fundamentals has changed for the better.
S&P’s assessment rests on a triad of strengths: growth, fiscal prudence and stability.
Between 2021-22 and 2023-24, India clocked an average real GDP growth of 8.8 percent—the fastest in Asia. Even with moderation, S&P expects annual growth to average 6.8 percent over the next three years. In an era when China is slowing and advanced economies are flirting with stagnation, India offers a rare momentum.
The Centre’s provisional fiscal deficit has narrowed to 4.8 percent of GDP in 2024-25, with a target of 4.4 percent for 2025-26. General government deficits—which measure the gap between overall government spending and revenue—are expected to fall from 7.3 percent to 6.6 percent by 2028-29. Debt, while high at about 81 percent of GDP, is finally on a downward slope. For rating agencies—always wary of fiscal slippage—this trajectory mattered.
Finally, the trajectory of our inflation also signalled a policy credibility, with consumer price inflation falling to 1.6 percent in July 2025, comfortably within the Reserve Bank’s 2-6 percent band, after bouts of food and fuel shocks.
The payoffs from the upgrade have been visible. Markets celebrated, yields on 10-year government bonds eased, foreign inflows into Indian debt rose, and S&P promptly upgraded 10 Indian banks and non-banking financiers. For companies planning infrastructure investments, the signal was clear: the cost of capital is likely to come down. For the government, the implications are equally significant: lower borrowing costs free up fiscal room for productive spending.
There is also a softer, but equally important, dividend: confidence. An upgrade after 18 years reassures investors that India is not just a high-growth story but also a credible borrower. In a global economy riddled with uncertainty, this credibility is worth more than any single fiscal statistic.
And yet, to treat the upgrade as the final word would be a mistake. India’s new rating of BBB still keeps it just two notches above ‘junk’ grade. The upgrade acknowledges progress, but also embeds a warning: backsliding could be punished.
Three risks stand out. First, the risk of external headwinds. The looming threat of 50 percent US tariffs on selected Indian exports is not trivial. S&P calls it “manageable” because India’s economy is consumption-driven; but trade tensions could still dent sentiment. Second, the risk of fiscal trade-offs. The government’s ambitious GST 2.0 reforms aim to simplify taxes and spur consumption. In the long run, this is welcome. In the short run, it could squeeze revenues, making fiscal targets harder to meet. Finally, one needs to consider the debt dynamics in India’s case, as the tax-GDP ratio remains modest at about 11.6 percent. Without stronger revenue mobilisation, debt reduction will rely disproportionately on growth and disinvestment. Neither is guaranteed.
To sustain momentum, India must deliver on four fronts. One, India has to aim at deepening its tax reforms, widening of the base. Direct tax reform—especially rationalising exemptions and improving compliance—are essential to lift revenues sustainably.
Second, India has to strengthen its fiscal transparency. Consistent, transparent fiscal reporting will matter more to rating agencies than ambitious targets. Third, the new upgrade is a mandate in favour of the government’s push for infrastructure investments. However, such investments have to fructify in a timely and cost-efficient manner. States, which account for nearly 40 percent of public spending, must be encouraged to build the institutional capacity to deliver projects on time and within budget.
Finally, it is important to guard macrostability, including inflation control, currency management, and financial stability. An upgrade can quickly unravel if investors sense a populist drift in policy.
Beyond economics, the upgrade is also about narrative. India has positioned itself as the world’s fastest-growing large economy, a hub for digital innovation, and a champion of emerging-market resilience. The rating upgrade reinforces this story. But it also places the country under sharper scrutiny. Every policy choice—from managing climate finance to regulating tech platforms—will now be judged also through the prism of international confidence.
The upgrade is a milestone, but it is also a mandate. If India uses this moment to double down on fiscal reforms, expand its revenue base, and maintain macro stability, the next upgrade will take fewer than 18 years.
Tulsi Jayakumar | Professor, Economics & Policy and Executive Director, Centre for Family Business & Entrepreneurship at Bhavan’s SPJIMR
(Views are personal)