S&P Just Upgraded India After 18 Years - Here’s What It Means for the Rupee, Bonds, and Your Borrowing Costs

India has received a long-awaited sovereign rating upgrade, with S&P Global Ratings raising the nation’s long-term sovereign credit rating to BBB from BBB-, while keeping the outlook stable.

This is the first rating change from S&P since January 2007, when the agency downgraded India to BBB-, and the first upgrade by any global rating agency since Moody’s raised India from Baa3 to Baa2 in November 2017.

According to a report by Emkay Global Financial Services, “India finally received a long-awaited rating upgrade… S&P cited India's sustained fiscal improvement and economic growth resilience as triggers for the upgrade, while the stable outlook reflects expectations that policy stability and the focus on infrastructure spending will continue.”
The agency’s decision places India on par with emerging market peers such as Indonesia and Mexico.

Why S&P Upgraded India
S&P pointed to several factors behind the decision:
Fiscal discipline and improvement in government finances, despite Covid-19 disruptions.
Resilience in economic growth even amid global headwinds.
Policy stability underpinned by infrastructure-led growth and fiscal transparency.

The report highlights that India’s post-pandemic fiscal and debt performance has been among the strongest in the emerging market universe.

“We see this as the payoff from a decade of policy focus on macro stability, with sustained gains in both the external sector and domestic balance sheets,” Emkay noted.
However, S&P indicated that further upgrades would depend on whether the net change in general government debt-to-GDP can be brought below 6% on a structural basis, a challenging goal.

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Implications for the Economy
A sovereign rating upgrade signals improved ability and willingness to meet debt obligations, enhancing investor confidence.

According to Emkay, “A rating upgrade into a higher investment-grade category of BBB can open the door for new pools of global funds’ capital.”

Key impacts expected:
Lower borrowing costs for the government, corporates, and other borrowers.
Potential boost in foreign inflows into Indian bonds and equities.
Reduced risk premium, aiding financing for the fiscal deficit and current account deficit (CAD).

These benefits are timely, as India faces risks of CAD rising above 1% of GDP in FY26 amid weak exports. Currently, net foreign flows in FY26-to-date stand near -USD 2.1 billion, with debt outflows of about USD 2.3 billion.

Market Reaction: Rupee and Bonds
The announcement initially lifted sentiment in financial markets. The rupee strengthened by around 0.1% before giving up some gains, while the benchmark 10-year government bond yield eased 5 basis points before retracing.

Emkay observed, “While the upgrade augurs well for foreign flows on a structural basis and would help G-sec yields at the margin, the downside to yields is still limited.” The domestic demand for government securities remains muted, suggesting the yield curve will likely remain steep in the near term.

The 10-year G-sec yield is expected to range between 6.35–6.50% in the coming months.

Factors to Watch for the Rupee
Despite the upgrade, the rupee’s trajectory will depend on several global and domestic developments:
US-India tariff negotiations, with a deadline of August 27, 2025, to avoid 25% additional tariffs.
Global trade deals involving the US, China, and other Asian economies.
Geopolitical risks for oil prices.
RBI’s currency interventions, especially amid volatile foreign flows.
The rupee has already recovered in August after a weak end to July, aided by the RBI’s tactical market moves.

India’s first sovereign rating upgrade in nearly 20 years reflects global recognition of its fiscal discipline and economic resilience. While the move boosts market sentiment and could lower financing costs, sustaining the momentum will require careful management of debt, CAD, and external trade headwinds.