Celebrate India’s rating upgrade with cautious optimism

S&P’s upgrade is anchored in India’s fiscal discipline — deficit control and monetary prudence. The fiscal deficit is projected to fall from 9.3 per cent of GDP in 2020–21, driven by pandemic stimulus, to about 4.4 per cent for 2025–26. The government adopted a “glide path” approach to fiscal reduction, increasing capital expenditure from 1.6 per cent of GDP in 2014–15 to over three per cent in 2025–26, while consolidating welfare and infrastructure spending.

The total workforce declined by about 15 million from 2011–12 to 2018 — a revealing setback in a country where demographics demand relentless job creation."Make in India," the flagship manufacturing initiative, aimed to restore industrial dynamism and boost exports. Yet, manufacturing’s share in GDP has fallen from 15 per cent in 2014 to nearly 13 per cent in 2022, with little evidence of lasting job creation or export growth. Instead, the service sector and informal economy continue to dominate — a vulnerability that was exposed during recent crises.

S&P Global Ratings on August 14 upgraded India’s sovereign credit rating from 'BBB-' to 'BBB' — ending an 18-year stretch at the lowest rung of investment grade. This long-awaited lift has produced a wave of celebration in financial circles and corridors of power, with the ruling party representatives and supporters hailing it as proof of India's economic resilience. But for many seasoned observers, including myself, having journeyed through India’s economic transformation as both a financial journalist and a corporate lawyer, this rating upgrade stirs guarded optimism, shadowed by a history of contested numbers, dodgy data, and unfulfilled socio-economic promises.

The significance of S&P's upgrade:

India’s climb from ‘BBB-’ to ‘BBB’ is not mere symbolism. It signals to global investors and lenders that India’s public finances and creditworthiness have decisively improved. In practical terms, Indian companies may now find cheaper funding on global markets; foreign direct investment (FDI) is likely to surge; the rupee and sovereign bonds stand to gain in credibility; and overseas borrowing costs should fall. Importantly, the timing is crucial — India faces newly imposed 50 per cent tariffs from the US, complicating the trade terrain and heightening the importance of robust credit standing.

S&P's rationale rests on robust macroeconomic fundamentals, improved monetary credibility, and “sustained fiscal consolidation.”

The agency expects India’s debt-to-GDP ratio to ease from 83 per cent today to 78 per cent by fiscal 2029. Meanwhile, the government projections tout average GDP growth of 6.8 per cent for the next three years, riding a wave of post-pandemic resurgence and strong infrastructure investment.

But beneath the celebratory headlines, India’s economic story is more complicated.

Economic growth: Fact, fiction and manipulation:

Beneath India's apparent transformation since 2014 lurk controversies around official data reporting and policy outcomes under the ruling BJP. The party’s narrative showcases buoyant growth, strong investment, and ambitious reform: GST, public sector divestment, capex drive, and financial inclusion.

Yet, independent analysts and former high-ranking officials have consistently questioned the integrity of headline statistics.

Notably, Arvind Subramanian, India’s former Chief Economic Advisor, argued that GDP growth figures post-2012 may be overstated by up to 2–2.5 per cent due to methodological tweaks. Official records claim average GDP growth of seven per cent, but alternative estimates suggest it is closer to five per cent, a significant gap with profound implications for policy and politics.

Unemployment, manufacturing and the real economy:

Prime Minister Narendra Modi’s repeated vow to deliver 20 million new jobs annually has not materialised. The leaked 2017–18 National Sample Survey Office (NSSO) survey showed unemployment at 6.1 per cent—the highest in 45 years. While the government delayed the data’s release and highlighted subsequent Periodic Labour Force Survey (PLFS) improvements, critics contend that urban and youth unemployment remain underestimated.

The total workforce declined by about 15 million from 2011–12 to 2018 — a revealing setback in a country where demographics demand relentless job creation.

"Make in India," the flagship manufacturing initiative, aimed to restore industrial dynamism and boost exports. Yet, manufacturing’s share in GDP has fallen from 15 per cent in 2014 to nearly 13 per cent in 2022, with little evidence of lasting job creation or export growth. Instead, the service sector and informal economy continue to dominate — a vulnerability that was exposed during recent crises.

Poverty and inequality: Claims vs reality:

The government’s NITI Aayog claims poverty dropped to five per cent — an oft-repeated talking point. But independent assessments, including those by the World Bank and Oxfam, offer a less sanguine view. The World Bank estimates poverty closer to 12–15 per cent, while Oxfam reports India’s richest one per cent now enjoy 40 per cent of national wealth, up from 22 per cent in 2014, a dramatic rise in inequality. The prosperity boom has not trickled down as promised; vast segments remain excluded from India’s growth narrative.

Fiscal discipline and its controversies:

S&P’s upgrade is anchored in India’s fiscal discipline — deficit control and monetary prudence. The fiscal deficit is projected to fall from 9.3 per cent of GDP in 2020–21, driven by pandemic stimulus, to about 4.4 per cent for 2025–26.

The government adopted a “glide path” approach to fiscal reduction, increasing capital expenditure from 1.6 per cent of GDP in 2014–15 to over three per cent in 2025–26, while consolidating welfare and infrastructure spending.

However, critics point out that the headline progress conceals accounting maneuvers. Off-budget borrowing, subsidies shifted outside budgetary oversight, and optimistic nominal GDP assumptions have all masked real debt and deficit levels. Despite GST revenues increasing 9.4 per cent year-on-year in FY2024–25, collections have often missed targets, fueling aggressive compliance drives but straining the formal sector.

Public debt — at 88 per cent of GDP in 2020, now eased to 82 per cent — remains daunting, especially as the government continues to rely heavily on domestic borrowings to finance welfare and infrastructure expansion. Interest costs are high, and the revenue-to-GDP ratio remains one of the lowest among peer economies, exposing India to future fiscal risks.

Reform, resilience and revenue:

Reform efforts — public sector divestment, digitalization, labor codes — have advanced, but are sometimes undermined by slow implementation, bureaucratic resistance, and changing political winds. The FY26 Union Budget reaffirmed India’s commitment to fiscal consolidation, balancing growth with discipline. Yet, to sustain trajectory, income levels and productivity must rise faster, and capex needs quantum boosts.

Policy consistency and infrastructure investment are S&P’s justification for confidence, but dissenting voices worry that these improvements are more concentration than diffusion. Both fiscal and monetary policy credibility continue to be vulnerable to shifting political priorities and global shocks.

The political equation: Data integrity and governance:

Since 2014, the BJP’s consolidation of power created a centralised approach to economic management. But critics — including opposition parties, economists, and former bureaucrats — warn of eroding data independence.

Instances of suppressing unfavorable indices before elections have triggered resignations from the National Statistical Commission and raised fears of statistical governance eroding into political leverage.

Transparency has become a flashpoint: credible economic governance demands empowering statistical agencies, clear methodology, independent audits, and honest reporting. The controversies surrounding data integrity cast a shadow over S&P’s confidence — numbers must reflect real progress, not wishful projections.

The legal perspective: Risk, compliance and diligence:

For corporate India and global investors, a rating upgrade is a passport to improved access, lower capital costs, and promising FDI — $81billion inflow in FY2024–25 underscores that potential. But seasoned diligence is essential. Beyond macro numbers, scrutiny of fiscal health, legal reforms, policy consistency, and institutional strength is non-negotiable.

The BJP’s loss of an outright majority in the 2024 elections has injected policy uncertainty, complicating legal and economic reforms. Businesses need to rely on independent labor market data, sectoral performance indices, and private audits rather than government figures alone.

Conclusion: A milestone; but the journey continues:

S&P’s upgrade is a welcome marker of growing global confidence. But it does not certify deep structural transformation or inclusive economic success.

India’s development narrative under the BJP is fraught with contradictions: glossy growth statistics, persistent unemployment, increasing inequality, and compromised statistical governance. The progress is real — but so are the doubts. India must now move from headline achievement to substantive reform. That means restoring integrity in data, empowering independent agencies, promoting transparent methodologies, and a robust auditing of official figures.

Only then can India’s growth be broad-based, durable, and truly inclusive. For now, the ratings move is a milestone, not the finish line.

The message for policymakers, investors, and citizens alike: celebrate India’s ascent, but do so with cautious optimism, vigilant diligence, and unwavering insistence on transparency and accountability.

Only then will India’s economic story be fully and convincingly told.

(The author is former Senior Editor, The Economic Times, and currently practicing as an Advocate at the Telangana High Court)