Syllabus: GS3/ Economy
In News
- S&P Global Ratings has upgraded India’s long-term sovereign credit rating from ‘BBB-’ to ‘BBB’ with a Stable Outlook.
More about the News
- This is the first upgrade of India’s sovereign rating by S&P in 18 years.
- S&P’s decision reflects India’s sustained high economic growth, successful fiscal consolidation, and improved policy predictability.
- India’s projected GDP growth remains strong at 6.5% for FY26, and the country’s external position is considered robust.
About Sovereign Credit Ratings (SCR)
- Sovereign Credit Ratings are independent assessments provided by credit rating agencies (like S&P, Moody’s, Fitch) of a country’s ability to meet its financial obligations.
- They indicate the creditworthiness of a government and the risk associated with lending to it.
- Ratings range from ‘AAA’ (highest safety) with ‘BBB’ and above considered ‘investment grade’, below that ‘speculative’ or ‘junk’.
- They affect a country’s ability to access international financial markets, its cost of borrowing, and overall investor sentiment.
Significance
- Reduces Borrowing Costs: An upgraded rating lowers government and corporate bond yields, making borrowing cheaper abroad.
- Boosts Investments: The ‘BBB’ rating enhances India’s attractiveness to global funds, potentially bringing more FPI/FII inflows and strengthening market stability.
- Reflects Fundamental Strength: The upgrade is an endorsement of India’s economic policies, fiscal discipline, and resilience against global shocks.
- Encourages Institutional Confidence: Immediately after the sovereign upgrade, ratings for key Indian banks and financial institutions improved, reflecting system-wide credibility.
- Policy Implications: Affirms India’s path of prudent macroeconomic management, ongoing reforms, and stable inflation management by RBI.
- Global Perception: Counters earlier criticism about ratings not reflecting India’s fundamentals and elevates India’s stature in emerging markets.
- Enables Growth Push: Easier overseas funding will support India’s developmental ambitions, infrastructure push, and plans for a $5 trillion economy vision.
Source: PIB
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