S&P Global's recent upgrade of India's sovereign credit rating is expected to have a cascading positive impact on the Indian economy, particularly for foreign investment flows and the funding costs of Indian companies. Vishal Goenka of IndiaBonds.com believes that the upgrade to 'BBB' with a stable outlook will lower funding costs for corporations and attract stronger foreign inflows into bonds. This positive sentiment is echoed by economists and industry experts who foresee enhanced global positioning and fresh opportunities for fixed-income investors.
The upgrade, which comes after a gap of 18 years, reflects S&P's confidence in India's economic resilience and sustained fiscal consolidation. The agency projects a strong annual growth rate of 6.8% for India over the next three years, with a 6.5% expansion in FY26. This optimistic outlook is underpinned by the government's commitment to fiscal prudence, infrastructure development, and improved spending quality.
One of the most immediate benefits of the upgrade is the anticipated reduction in borrowing costs for Indian companies, especially those seeking external commercial borrowings (ECB). Top-rated firms could see savings of 10-20 basis points on ECBs, which are currently around 7.75%. This will provide a significant cost advantage compared to domestic bank loans, where the one-year marginal cost of borrowing-based lending rate (MCLR) is upwards of 8.50%. The reduced cost of capital will not only ease the financial burden on companies but also free up resources for economic development.
Furthermore, the sovereign rating upgrade is likely to expand the global investor base for Non-Banking Financial Companies (NBFCs), potentially leading to spread benefits of 15-40 basis points. This is particularly significant as NBFCs' share of ECB registrations has been rising, reaching 43% in FY25. The enhanced creditworthiness of Indian financial institutions, including major banks like HDFC Bank, ICICI Bank, and State Bank of India, following S&P's upgrade, is also expected to boost investor confidence and attract more foreign investment.
The upgrade is expected to accelerate foreign capital inflows into India, particularly into the debt market. Sonal Badhan, Economist at Bank of Baroda (BoB), noted that the upgrade reaffirms trust in India's sound fundamentals and growth momentum, which will likely lead to higher FPI inflows and a decline in bond yields. This influx of foreign capital will help India finance its fiscal and current account deficits and could trigger positive externalities.
The government has welcomed the S&P's decision, with the Ministry of Finance highlighting that it underscores the stability provided by Prime Minister Narendra Modi's leadership. The upgrade is seen as a recognition of India's prioritization of fiscal consolidation, strong infrastructure creation, and inclusive growth approach. The government has committed to gradually bringing its debt-GDP ratio down, signaling its intent to keep the borrowing program range-bound.
While the US has imposed tariffs on India, S&P believes that the economic impact will be manageable, as about 60% of India's economic growth stems from domestic consumption. The agency expects India's strong economic fundamentals to underpin growth momentum over the next 2-3 years, with monetary policy settings becoming increasingly conducive to managing inflationary expectations.
Overall, S&P's upgrade of India's sovereign credit rating is a significant positive development that is expected to boost foreign flows, lower funding costs for Indian companies, and enhance the country's global economic standing. The upgrade reflects confidence in India's economic resilience, fiscal discipline, and long-term growth prospects, paving the way for a more robust and prosperous future.
