India stands at a pivotal moment in its economic journey—experiencing rapid growth yet facing a persistent paradox. Despite its remarkable economic achievements, the country’s credit rating has remained stuck at the lowest investment-grade level for nearly two decades. This raises an important question: How has India managed such impressive growth while still struggling to earn the credit rating it arguably deserves?

A Success Story in the Making

India has demonstrated remarkable resilience, emerging as one of the world’s fastest-growing economies. Between 2000 and 2024, the country maintained an average growth rate of 6.3%, consistently outperforming many of its global peers. India’s economy surged from the 13th largest in 2006 to the 5th largest by 2023, solidifying its place as a key global player. With the right policy framework and sustained reforms, India has the potential to achieve high-income status by 2047.

However, this ambition requires more than maintaining current growth trends. To reach this milestone, India must accelerate its annual growth rate to 7.8% over the next two decades. Achieving this goal will demand extensive reforms in infrastructure, education, and labour markets to ensure long-term economic expansion.

The Credit Rating Paradox

Despite India’s economic success, its Sovereign credit rating has remained at BBB-, the lowest investment-grade level. This is perplexing given India’s strong foreign exchange reserves, controlled inflation, and consistent economic growth. However, rating agencies continue to cite concerns over India’s high debt levels and fiscal management challenges as justification for maintaining its current rating.

Debt in Perspective

A closer examination of India’s debt reveals a more balanced picture. Unlike many developed economies where debt has outpaced economic growth, India’s debt has remained proportional to its GDP. This trend suggests a healthier fiscal trajectory than many of its global counterparts. Additionally, India has demonstrated strong fiscal discipline, successfully navigating major global crises, including the 2008 financial meltdown and the 2020 pandemic.

While several countries with lower debt levels now struggle with rising interest costs, India remains relatively well-positioned due to its effective debt management. However, this fiscal prudence has yet to translate into an upgraded credit rating.

Policy Strengths and Risk Management

Beyond raw economic metrics, credit rating agencies assess a country’s policy framework and exposure to external risks. Since 2015, India has pursued an inflation-targeting policy that has brought inflation down from an average of 8% to around 5%. The country has also reduced its current account deficit and amassed substantial foreign exchange reserves, bolstering its resilience against global economic shocks.

Another crucial factor is India’s debt composition. A significant portion of its debt is domestic and denominated in Rupees, insulating the country from currency volatility and sudden shifts in foreign capital flows—risks that have severely impacted other emerging markets.

Time for a Credit Rating Reassessment?

Given India’s impressive growth trajectory, sound fiscal management, and reduced external vulnerabilities, it may be time to reassess its credit rating. An upgrade could unlock access to cheaper capital, facilitating greater investment in infrastructure, social development, and climate resilience—key areas that will shape India’s future.

India’s credit rating should evolve in tandem with its economic transformation. As the country continues on its path to becoming a global economic powerhouse, a more favourable credit rating could serve as both recognition of its progress and a catalyst for further growth.

NB: Please note that the views expressed in this article are not those of DataPro Rating Team