Introduction
One piece of news that I read on Economic Times about S&P Global upgrading the credit ratings of several major Indian financial institutions. The story reports how S&P has enhanced up the ratings for 10 banks and lenders. Their list include heavyweights like SBI, HDFC Bank, ICICI Bank, and others.
This follows a broader upgrade to India’s sovereign credit rating from ‘BBB-‘ to ‘BBB‘ with a “stable outlook.”
This is the first such positive shift in 18 years since 2007.
It’s all tied to India’s strong economic fundamentals, like robust growth, fiscal discipline, and a healthier banking sector.
The economic times article highlights how these upgrades reflect confidence in India’s ability to handle debt and sustain momentum even in tough times.
You can read the summarized version of my post on Reddit (read here).
Scepticism: Trump’s Tariff (25%+25%) and Rating Upgrade
This is where my sceptic thoughts gets triggered.
This optimistic rating upgrade comes right on the heels of escalating trade tensions. These tensions are between India and the US (Trump Administration).
We’re talking about a hefty 25% base tariff which was imposed on August 7, 2025. Additional 25% tariff is slated for August 27, 2025.
Together, they are an effectively slap of 50% barrier on Indian exports. These exports include heavily exported Indian items like textiles, auto parts, gems and jewellery, etc
Trump has positioned this as retaliation for India’s high tariffs on US goods (like 150% on Harley-Davidson bikes). Trump is also saying that the ongoing energy deals of Indian with Russia amid the Ukraine conflict, is another reason for hig tariffs.
It feels like a sanction in disguise. It will potentially hurting India’s export-driven sectors.
So, on one hand, a US-based agency like S&P is giving India a thumbs-up, while on the other, the US government is throwing up trade walls. How do these two narratives coexist without clashing?
That’s exactly why I’m so skeptical about this whole setup.
Why 50% Tariff Is a Big Deal For India
India faces stiffer competition as compared to countries like Bangladesh, Vietnam, and Indonesia, which enjoy preferential tariff rates with the US.
| SL | Country | Share of US Imports | Tariff Rates Imposed |
| 1 | China | 13.40% | 30% |
| 2 | Vietnam | 4.20% | 20% |
| 3 | India | 2.70% | 50% |
| 4 | Thailand | 1.90% | 19% |
| 5 | Malaysia | 1.60% | 19% |
| 6 | Singapore | 1.30% | 10% |
| 7 | Indonesia | <1% | 19% |
| 8 | Bangladesh | <1% | 20% |
Source: BBC
So, you can see how, how India’s competing countries get a better rates than India (even China’s situation is better). In this table, we can see that for the US, India is not a major exporter as its share is only 2.7%.
But for India, US is a major country to export to. India’s total exports (goods and services) to all nations in FY 2024-25 reached $824.9 billion. Out of this, exports to the US were $86.51 billion, which is about 10.5% of the total.
To get a better perspective of what $86.51 Billion or 10.5% means for India, here are top 5 countries to whom India exports and their share in $Billions:
| SL | Country | Exports From India | % Share of Total ($824.9 billion) |
| 1 | United States | 86.51 | 10.5% |
| 2 | United Arab Emirates | 36.64 | 4.4% |
| 3 | Netherland | 22.76 | 2.8% |
| 4 | United Kingdom | 14.55 | 1.8% |
| 5 | China | 14.25 | 1.7% |
What does it mean? For us, India, US with $86.51 Billion exports is far the biggest market. A 50% tariff from this market will hit our exports in a major way.
If the India will loose its market share in the US, who will gain? Our competing countries like Mexico, China, Vietnam, Bangladesh, Thailand, etc will take the advantage.
These nations are snapping up market share in manufacturing and exports, yet here’s S&P upgrading India as if these headwinds don’t matter.
It makes me wonder if there’s some behind-the-scenes maneuvering at play, like geopolitical chess where strategic alliances (e.g., the Quad against China) outweigh trade spats.
Or is it just that credit ratings are insulated from political drama?
Either way, the timing feels off, and I can’t shake the feeling that we’re not able to see the full picture of this trade drama.
I’m afraid that maybe we investors are being lured in despite the risks. Or the alternative is can also be true, perhaps India’s domestic strengths are truly that bulletproof.
I’ll try to explain whatever I can make out of this situation.
The Explanation
Now, I think you can understandable why this situation feels contradictory at first glance.
- Trade tensions escalating with high tariffs from the US.
- Yet, a positive shift in credit ratings from a US-based agency like S&P Global.
I’ll break down my thoughts on this step by step. I’ll try to stick to the facts and skip the rhetoric that maybe is going inside my mind.
I will try to clarify how these things, tariff & credit ratings, can coexist without necessarily indicating “something else going on behind the scenes.”
In short, I think my skepticism is not so reasonable as it sounds.
Understanding the Credit Ratings Upgrade
Credit ratings and trade policies operate in largely separate lanes. They are driven by different factors. No matter what is current tariff situation is there for India, the underlying long-term economic story remains strong. At least, this is something my mind is still not discounting.
The economic times news article I’ve shared is specifically about S&P upgrading the ratings of 10 Indian financial institutions. It follows a broader upgrade to India’s sovereign (government) credit rating.
On August 14, 2025, S&P raised India’s long-term sovereign rating from ‘BBB-‘ to ‘BBB’ (with a stable outlook), marking the first such upgrade in 18 years since 2007. This piece of upgrafe isn’t just about banks. It reflects S&P’s view of India’s overall creditworthiness – the government’s ability to repay debt.
Read about S&P Global’s India Rating of BBB- in June’2024.
Key reasons cited by S&P for this rating upgrade after 18 years are the following:
- Economic resilience and growth momentum: India is projected to remain one of the fastest-growing major economies. Its GDP growth will be around 7-8% annually. The growth will be mainly driven by domestic demand, infrastructure investments, and services exports.
- Fiscal consolidation: The government has been reducing its fiscal deficit (from over 9% of GDP during the pandemic to around 5-6% now). There are better revenue collections, spending discipline, and reforms like GST. Reduced deficit will
- Improved banking sector health: Lower NPAs (bad loans), stronger capitalization, and structural reforms (e.g., the Insolvency and Bankruptcy Code) have made the financial system more robust.
- High foreign exchange reserves: At over $650 billion of foreign reserves, provide a buffer against external shocks, like volatile oil prices or capital outflows.
S&P explicitly noted that these factors outweigh short-term risks like US tariffs. It position India “among the best-performing economies” globally.
They even mentioned that the economic impact of US tariffs would be “limited” due to India’s diversified trade and domestic focus.
This upgrade aligns with similar positive outlooks from other agencies like Moody’s and Fitch in recent years, though S&P had been more cautious until now.
Understanding the Tariff Hike
The 50% tariffs we are discussion stems from the Trump administration’s policies in 2025. Reciprocal tariffs are imposed on countries seen as engaging in “unfair” trade practices or bypassing US sanctions. One such India specific example is continued purchases of discounted Russian oil amid the Ukraine conflict.
The 50% tariff is composed of the following:
- It includes a 25% base tariff effective August 7, 2025,
- Plus an additional 25% set for August 27, 2025, targeting Indian goods like textiles and auto parts.
The point to understand here are these:
- These aren’t full “sanctions” like those on Iran or Russia. Negotiations could still soften them.
- India’s exports to the US are significant ($86 billion annually). They represent about 10% of India’s total exports. India’s GDP for FY 2024-25 is approximately $3.94 trillion. Exports to the US, at $86.51 billion, constitute about 2.2% of this GDP. The 50% US tariffs may reduce India’s GDP by roughly 0.19-0.8%. The impact of the tariff will be limited as India economy is mostly domestic-driven.
- Let’s compare India with a country Vietnam which got better rates (20%) from the US. Our economy is more insulated than export-heavy peers like Vietnam. For Vietnam, the US exports are 30-40% of their GDP.
The strain on US-India ties is real. Even experts call it a “challenging moment.” But it’s more about geopolitics. The challenge is more about India’s neutral stance on Russia, than India’s credit profile.
Credit ratings from agencies like S&P focus on long-term financial stability, not immediate trade spats.
Tariffs might reduce 0.5-1% off India’s GDP growth in the short term, but S&P views this as manageable given India’s buffers.
Think of it like this:
- Ratings = Credit report for borrowing: Based on income (GDP), savings (reserves), debt management, and future earning potential. These are the places where India is doing quite well.
- Tariffs = A trade dispute: Political, negotiable, and not a direct hit to debt repayment.
S&P is independent (regulated but not controlled by the US government. So it doesn’t mean that they will always bend to White House policies.
Though I’ll say that the timing of the rating upgrade is still questionable. Is about Republican vs Democrats playing in the background? We can’t say this with surety.
How Rating Upgrade Helps India
For context, compare ratings of India’s competitors (as of mid-2025):
| Country | S&P Sovereign Rating | Key Factors |
|---|---|---|
| India | BBB (Stable) | High growth, fiscal improvements, but high debt (~80% of GDP). |
| Vietnam | BB+ (Positive) | Export boom, but vulnerable to global trade wars and higher debt risks. |
| Indonesia | BBB (Stable) | Resource-rich, but slower growth (~5%) and commodity dependence. |
| Bangladesh | BB- (Stable) | Low-cost manufacturing edge, but political instability and lower reserves. |
India’s upgrade puts it on par with Indonesia and ahead of Vietnam/Bangladesh.
Conclusion
US-India relations are multifaceted:
- Tense on trade/Russia,
- But strong strategically e.g., defense tech transfers, Quad alliance against China).
The upgrade might even signal to investors that India is a safe bet amid global uncertainty.
The political impact caused by high tariff might get offset by more FDIs flow due to rating upgrade and India being a very large economy now.
If anything that may be happening behind-the-scenes is possibly India’s diplomacy relate to negotiating waivers on Russian oil while deepening US ties elsewhere.
Overall, I think this isn’t as strange as it seems once you. We must separate economics from politics.
Have a happy investing.
