‘Exhili-Rating’ for India: S&P Upgrade Boosts Leverage in Trade Talks
India received a significant vote of confidence as S&P Global Ratings upgraded the country’s long-term unsolicited sovereign credit rating to “BBB” from “BBB-”, and its short-term rating to “A-2” from “A-3”, with a stable outlook for the long-term rating.
The upgrade signals global acknowledgment of India’s robust growth story, even amidst domestic political skepticism, including Congress leaders like Rahul Gandhi endorsing former US President Donald Trump’s dismissive remark that India was a “dead economy.”
S&P noted, “The stable outlook reflects our view that continued policy stability and high infrastructure investment will support India’s long-term growth prospects. Combined with cautious fiscal and monetary management that moderates the government’s elevated debt and interest burden, these factors underpin the rating for the next 24 months.”
Trade Relations and Export Resilience
The upgrade comes amid uncertainty surrounding India-US trade relations, where potential high tariffs have raised concerns. S&P assessed that even if a 50% tariff were imposed, it would not significantly hinder growth. India’s exports to the US account for roughly 2% of GDP, and with sectoral exemptions for pharmaceuticals and consumer electronics, the effective exposure drops to 1.2% of GDP. While there may be a temporary hit, S&P expects the long-term growth trajectory to remain unaffected.
Political Stability and Economic Initiatives
The agency also highlighted India’s political stability, noting that the BJP’s parliamentary majority facilitates smoother implementation of laws and schemes. S&P projected a GDP growth of about 6.5%, citing government initiatives like Jan Dhan, MSME support programs, and Ayushman Bharat as catalysts for economic growth.
Trade and Bilateral Negotiations
The Commerce Ministry reported increased trade in sectors such as gems, mechanical goods, and auto parts during the latest quarter. Despite trade tensions with the US, ongoing negotiations continue, with the ministry emphasizing the mutual importance of India-US trade.
The upgrade also strengthens India’s position in upcoming bilateral trade agreements with other countries, providing greater leverage in negotiations and enhancing global investor confidence.
