India Upgraded: S&P Global says effect of US tariffs ‘manageable’

The effect of tariffs imposed by the Donald Trump administration on imports from India will be “manageable,” ratings agency S&P Global wrote in its note while upgrading India’s sovereign rating.

India’s rating has been upgraded by S&P Global to BBB from BBB- earlier, while the outlook was maintained as stable.

The Donald Trump administration had imposed a 25% tariffs on Indian imports ahead of the August 1 deadline, which was later raised to 50%, after the US President accused India of doing business with Russia and thereby fuelling their war with Ukraine.

“India is relatively less reliant on trade and about 60% of its economic growth stems from domestic consumption. We expect that in the event India has to switch from importing Russian crude oil, the fiscal cost, if fully borne by the government, will be modest given the narrow price differential between Russian crude and current international benchmarks,” S&P Global wrote in its note.

The ratings agency highlighted that India’s weak fiscal setting has always been the most vulnerable part of its sovereign rating profile, but with the economic recovery now well on track, the government can depict a more concrete path to fiscal consolidation.

“The bond market was having a lot of concerns about some fiscal slippage or need for fiscal stimulus or some sort of fiscal related issues in the coming year, but this is likely to give some relief to bond markets. We have already seen yields drop by four to five basis points. So, some positive news on the cost of borrowing, cost of capital coming down as well,” Kanika Pasricha of Union Bank of India told CNBC-TV18.

S&P Global expects India’s GDP to grow 6.8% annually over the next three years, with this year’s growth projected to be at 6.5%. “Public investment and consumer momentum will underpin solid growth prospects over the next three to four years,” the S&P Global note said.