Increased foreign investments anticipated following S&P rating upgrade, leading to a potential easing of borrowing expenses, according to a Bank of Baroda economist.
In a significant development, S&P Global Ratings has upgraded India's long-term unsolicited sovereign credit rating to 'BBB' from 'BBB-', marking a milestone in the country's economic journey [1]. This upgrade is expected to lower borrowing costs for India, accelerate foreign capital inflows, especially into the debt market, and reduce borrowing costs for both the government and corporates [2][4].
The upgrade comes amidst a turbulent global environment, yet India has managed to maintain its consistent performance. The central government fiscal deficit ratio has consistently remained on track of consolidation, and the government of India has committed to gradually bringing its debt-GDP ratio down in the union budget for FY26 [3].
India's robust economic growth, policy continuity, and improved fiscal management have all contributed to the rating upgrade [5]. S&P's decision is based on the country's high levels of infrastructure investment and a disciplined policy environment [6]. The stable outlook on the long-term rating reflects optimism around these factors, suggesting confidence in India's ability to sustain its growth trajectory [5].
The upgrade is likely to encourage other rating agencies, such as Moody's and Fitch, to follow suit [7]. Foreign capital inflows into India are expected to accelerate following this credit rating upgrade [2]. The expected decline in bond yields due to higher Foreign Portfolio Investment (FPI) inflows this year is further reinforced by the rating upgrade [8].
The impact on borrowing costs is expected to be swift after the upgradation of the rating. This improvement could potentially save up to 20 basis points in borrowing costs for top-rated firms [4]. Overseas borrowing could become cheaper for Indian companies and non-bank lenders, enhancing economic growth prospects and fiscal health [2][4].
Moreover, India recorded a 14% increase in Foreign Direct Investment (FDI) inflows in FY 2024-25, with USD 81.04 billion compared to USD 71.28 billion in FY 2023-24 [9]. This surge in FDI inflows, coupled with the decline in bond yields, could further boost the Indian economy.
In conclusion, the S&P credit rating upgrade is set to boost capital flows into India and reduce interest expenses on borrowing, helping to enhance economic growth prospects and fiscal health [2][4]. The upgrade reinforces investor confidence in India's sound economic fundamentals and growth momentum, making it an attractive destination for foreign investment.
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