S&P’s India upgrade: Better late than never

S&P certainly took its time to raise India's sovereign credit rating, which it did last week. The economy has weathered the global financial crisis, Covid and its severe disruptions, and fragmenting trade since its last upgrade. It has also successfully addressed a bad loan crisis at home, demonetised currency notes and implemented GST during this period.

These are all shocks that could have smothered economic growth in a less resilient economy. The upgrade comes at a time when India's GDP growth is expected to be twice the global rate, inflation has been successfully tackled, fiscal balance is enviable, the merchandise trade deficit is manageable and the country has maintained a spotless record of debt repayment.

Does it take credit rating agencies 18 years to recognise structural improvements in an economy before considering an upgrade? S&P is the first of the 'troika'-along with Moody's and Fitch-to take this step.


In 2007, India had just become a $1 tn economy; today it exceeds $4 tn. Have rating agencies been fair to their client creditor-investors by missing the India story entirely?

Credit appraisal has long been questioned for its inability to predict financial crises. India may serve as an important example of this inability to foresee sustainable investment opportunities.

If S&P's competitors snap out of their inertia soon, it would raise even more discomforting questions about how credit raters operate. They share broadly similar methodologies with only minor variations, which makes rating actions self-reinforcing.

Ideally, their forecasting capability should show up at turning points in the business cycle. India is coming off its post-pandemic recovery spurt, and current factors are more structural and enduring. These changes are incremental, but credit ratings should be able to identify a critical mass of both beneficial and adverse influences.

Emerging economies may challenge forecasting models built for mature markets-yet these are exactly where investors are most likely to chase rapid and sustainable growth.