India Rating upgrade By S&P

photo credit:financialexpress.com

I got an excellent Independence Day gift when I saw the news that Standard & Poors (S&P), a highly acclaimed international rating agency upgraded India from BBB- to BBB. The rating has happened after 18 long years.

Commenting on the rating upgrade, Yee Farn Phua – Director of sovereign and International Public Finance Ratings for Asia at S&P Global says

“India has never been in distress as its fundamentals are sound”

Main reasons that caused a rating upgradation are:

• Better than average GDP growth consistently for many years, almost highest amongst all major economies.
• Inflation rates coming down to 2% – 3% which is at par with the best.
• Government spending on Infrastructure that is reflective of future development of the economy.

What it means for India:

• India can negotiate a better pricing in the international markets on the basis of upgraded rating.
• Indian companies’ individual international ratings will also get upgraded to enable them to avail a better pricing in international markets.
• Improved investor sentiments for Indian equity market and better flow from FII and FDI.

Roadblocks:

• Even if the credit rating is upgraded by S&P, other two major international rating agencies Moody’s and Fitch are still maintaining the lowest investment grade rating for India. Taking advantages due to S&P rating upgrade will be difficult until these agencies also upgrade India rating.
• India has serious concerns with regard to Unemployment, Per capita, income disparity and interest burden that needs to be overcome. As Yee Farn Phua says “Interest payment to revenue …are big burden for the Government”
• Even with the upgrade, India is far behind the developed nations as far as rating is concerned. India is now in the same rating bucket as Mexico, Greece and Indonesia.

Earlier Ratings:

Sept 1990	BBB
May 7, 1991	BBB –       downgrade
May 29,1991	BB+         downgrade
Oct 1991	BB            3rd downgrade in a year
Feb 2005	BB+           upgrade
Jan 2007	BBB-         upgrade
Aug 2025	BBB           upgrade

Top economies rating by S&P:

Germany	AAA
US	AA+
UK	AA
France	AA-
China	A+
Japan	A

Still, it is a thing of satisfaction that we achieved a much-awaited upgrade. It must give a reason to other rating agencies also, to review and give an upgrade in their ratings to India as well.