Mint Primer | Sovereign rating: How India can go from B to A
Subscribe to enjoy similar stories. Fitch Ratings has rated India as “BBB-" with a stable outlook. This means India’s credit quality is good and the chances of a default are low; however, adverse business or economic condition can impair this quality.
BBB- is also the lowest investment grade rating. Other ratings agencies such as Moody’s and S&P have ranked India at “Baa3" and “BBB-" respectively—similar level as Fitch. By comparison, China has an “A+" rating, which indicates high credit quality and low risk of default.
The US, in its turn, has an “AA+" rating, which implies that country has very high credit quality and a very low default risk (see chart). The Union government has been pretty single-minded in its fiscal consolidation efforts. It has improved the quality of spending by substantially increasing the share of capital expenditure.
By better targeting subsidies and cutting back on wasteful spending, it has reined in the revenue expenditure sharply. By doing this, and through better revenue mobilization, it has almost halved its fiscal deficit from 9.2% of gross domestic product (GDP) in FY21 to 4.8% in FY25. It will drop further to 4.4% in FY26.
It is also committed to reducing central government debt from 57.1% in FY25 to 50% levels by FY31. It can help accelerate India’s economic growth. A better rating means a lower risk of default, and this translates into a lower cost of borrowing.
As mentioned earlier, India is currently at the lowest investment grade level. An upgrade will make it more attractive for investments, which is key to fuelling growth. A higher rating boosts the overall credibility of an economy.
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