S&P Global Ratings has increased the sovereign credit rating of India in mid-August from BBB- to BBB, a notch above its lowest investment quality note.
The rating agency had transferred India’s rating to a positive perspective in March, but the upgrade itself came after a difference of 18 years.
S&P has cited the good budget management of the Indian government, a strong growth in GDP, better quality public spending and the effectiveness of its monetary policy in the management of inflationary expectations. According to the agency, the real GDP growth of India between 2022 and 2024 was 8.8%, the best in Asia-Pacific. S&P expects a GDP growth rate of 6.8% for the next three years, keeping India among the most efficient economies in the world in the world.
The justification of ratings examined the sustained and continuous efforts of the government in terms of debt reduction, the structural improvement of the budget deficit and the reduction in debt costs. The debt ratio to the GDP of India – consolidated from the debt of the government of the State of Central Plus – gradually dropped to 83% of GDP against 90% several years ago; The S&P projection is 78% of GDP by 2028-2029. The tax ratio / GDP improved at 11.6% and should continue to increase in the coming years. The combined budget deficit – the center and the states – fell to 7.8% of GDP; S&P expects that it comes down to 7.3% next year and drops to 6.6% by 2028-29.
A key difference was the change in public spending to increased accent on the rapid creation of infrastructure. India public capital expenses are now equal to 5.5% of GDP, which is greater than its sovereign peers. Investments supported by infrastructure has eliminated economic growing bottlenecks, which in turn should maintain higher levels of economic activity and growth rate. Bofa Securities indicates that the upgrading of the S&P rating validates the government’s budgetary credibility and raises the possibility that other rating agencies are part.
The 10 -year bond at 10 years of the Indian government has dropped by 10 basic points immediately after the news of the upgrade, because the expectation is now for an increased weight for India in the global bond indices and the increase in the flow of funds on the Indian bond market.