S&P upgrades India's sovereign credit rating, sparking questions about rating agencies' ability to predict financial crises.

S&P upgraded India's sovereign credit rating after 18 years, recognizing the country's resilience in weathering global crises, successfully addressing bad loans, implementing GST, and maintaining fiscal balance. The upgrade comes at a time when India's GDP growth is expected to be twice the global rate and inflation is under control. Rating agencies have been criticized for missing the India story, and their forecasting capability has been questioned. The upgrade raises questions about how credit raters operate and their ability to identify sustainable investment opportunities.

Title: S&P Upgrades India's Sovereign Credit Rating: A Reflection of Economic Resilience

India's sovereign credit rating has been upgraded by S&P Global from 'BBB-' to 'BBB' [1], a significant move after 18 years. This upgrade underscores the country's remarkable resilience in the face of global crises, its successful handling of bad loans, and the implementation of the Goods and Services Tax (GST). The upgrade comes at a time when India's GDP growth is projected to be twice the global rate and inflation is under control.

The upgrade, which reflects India's economic buoyancy, is a result of several key factors. S&P Global cited India's strong recovery from the pandemic, buoyant economic growth, enhanced monetary policy, and stable inflation as the primary drivers behind the move [2]. The agency also noted that India's fiscal consolidation and efforts to improve spending quality have coalesced to benefit credit metrics.

The upgrade is particularly notable given the backdrop of US tariffs. Despite President Donald Trump's characterization of India as a 'dead economy' and the imposition of a 50% tariff on Indian exports to the US, S&P Global stated that the impact on India's economy would be manageable [2]. The agency noted that India's domestic consumption and infrastructure investments have bolstered its economic resilience.

The upgrade raises questions about the forecasting capabilities of credit rating agencies. Critics have long questioned the ability of agencies to identify sustainable investment opportunities. However, the recent upgrade suggests that S&P Global has been able to recognize India's economic strength and potential for long-term growth.

The upgrade is expected to have several implications for India's financial landscape. Top-rated firms could see savings of 10-20 basis points on external commercial borrowings, currently around 7.75% [1]. This shift could expand the global investor base for non-banking finance companies (NBFCs), potentially leading to spread benefits of 15-40 basis points [1].

The upgrade also highlights India's commitment to fiscal consolidation and infrastructure investments. The government's capital expenditure is projected to rise to 11.2 trillion Indian rupees by fiscal year 2026, up from 2% of GDP a decade ago [2]. These investments are expected to eliminate bottlenecks that currently impede long-term economic growth.

In conclusion, S&P Global's upgrade of India's sovereign credit rating is a testament to the country's economic resilience and long-term growth prospects. The upgrade, while a reflection of current economic conditions, also underscores the potential for India to become a major global economic player.

References
[1] https://economictimes.indiatimes.com/news/economy/finance/indias-sovereign-rating-upgrade-may-make-borrowing-overseas-cheaper/articleshow/123312297.cms
[2] https://timesofindia.indiatimes.com/business/india-business/trump-sees-a-dead-economy-but-us-based-sp-global-upgrades-indias-credit-rating-heres-why/articleshow/123302009.cms