India’s Credit score Ranking Improve Amid 50% US Tariff – Paradox?

Introduction

One piece of reports that I learn on Financial Instances about S&P International upgrading the credit score scores of a number of main Indian monetary establishments. The story experiences how S&P has enhanced up the scores for 10 banks and lenders. Their listing embody heavyweights like SBI, HDFC Financial institution, ICICI Financial institution, and others.

This follows a broader improve to India’s sovereign credit standing from ‘BBB-‘ to ‘BBB‘ with a “secure outlook.”

That is the primary such optimistic shift in 18 years since 2007.

It’s all tied to India’s robust financial fundamentals, like sturdy progress, fiscal self-discipline, and a more healthy banking sector.

The financial occasions article highlights how these upgrades mirror confidence in India’s capacity to deal with debt and maintain momentum even in powerful occasions.

You possibly can learn the summarized model of my put up on Reddit (learn right here).

Scepticism: Trump’s Tariff (25%+25%) and Ranking Improve

That is the place my sceptic ideas will get triggered.

This optimistic ranking improve comes proper on the heels of escalating commerce tensions. These tensions are between India and the US (Trump Administration).

We’re speaking a couple of hefty 25% base tariff which was imposed on August 7, 2025. Further 25% tariff is slated for August 27, 2025.

Collectively, they’re an successfully slap of fifty% barrier on Indian exports. These exports embody closely exported Indian objects like textiles, auto elements, gems and jewelry, and so on

Trump has positioned this as retaliation for India’s excessive tariffs on US items (like 150% on Harley-Davidson bikes). Trump can be saying that the continuing vitality offers of Indian with Russia amid the Ukraine battle, is one more reason for hig tariffs.

It looks like a sanction in disguise. It can probably hurting India’s export-driven sectors.

So, on one hand, a US-based company like S&P is giving India a thumbs-up, whereas on the opposite, the US authorities is throwing up commerce partitions. How do these two narratives coexist with out clashing?

That’s precisely why I’m so skeptical about this complete setup.

Why 50% Tariff Is a Massive Deal For India

India faces stiffer competitors as in comparison with nations like Bangladesh, Vietnam, and Indonesia, which get pleasure from preferential tariff charges with the US.

Supply: BBC

So, you’ll be able to see how, how India’s competing nations get a greater charges than India (even China’s scenario is best). On this desk, we are able to see that for the US, India shouldn’t be a serious exporter as its share is simply 2.7%.

However for India, US is a serious nation to export to. India’s complete exports (items and companies) to all nations in FY 2024-25 reached $824.9 billion. Out of this, exports to the US had been $86.51 billion, which is about 10.5% of the full.

To get a greater perspective of what $86.51 Billion or 10.5% means for India, listed below are prime 5 nations to whom India exports and their share in $Billions:

What does it imply? For us, India, US with $86.51 Billion exports is much the largest market. A 50% tariff from this market will hit our exports in a serious approach.

If the India will unfastened its market share within the US, who will acquire? Our competing nations like Mexico, China, Vietnam, Bangladesh, Thailand, and so on will take the benefit.

These nations are snapping up market share in manufacturing and exports, but right here’s S&P upgrading India as if these headwinds don’t matter.

It makes me marvel if there’s some behind-the-scenes maneuvering at play, like geopolitical chess the place strategic alliances (e.g., the Quad towards China) outweigh commerce spats.

Or is it simply that credit score scores are insulated from political drama?

Both approach, the timing feels off, and I can’t shake the sensation that we’re not capable of see the complete image of this commerce drama.

I’m afraid that possibly we buyers are being lured in regardless of the dangers. Or the choice is may also be true, maybe India’s home strengths are actually that bulletproof.

I’ll attempt to clarify no matter I could make out of this case.

The Clarification

Now, I believe you’ll be able to comprehensible why this case feels contradictory at first look.

• Commerce tensions escalating with excessive tariffs from the US.
• But, a optimistic shift in credit score scores from a US-based company like S&P International.

I’ll break down my ideas on this step-by-step. I’ll attempt to persist with the details and skip the rhetoric that possibly goes inside my thoughts.

I’ll attempt to make clear how this stuff, tariff & credit score scores, can coexist with out essentially indicating “one thing else occurring behind the scenes.”

In brief, I believe my skepticism shouldn’t be so affordable because it sounds.

Understanding the Credit score Rankings Improve

Credit score scores and commerce insurance policies function in largely separate lanes. They’re pushed by various factors. It doesn’t matter what is present tariff scenario is there for India, the underlying long-term financial story stays robust. No less than, that is one thing my thoughts remains to be not discounting.

The financial occasions information article I’ve shared is particularly about S&P upgrading the scores of 10 Indian monetary establishments. It follows a broader improve to India’s sovereign (authorities) credit standing.

On August 14, 2025, S&P raised India’s long-term sovereign ranking from ‘BBB-‘ to ‘BBB’ (with a secure outlook), marking the primary such improve in 18 years since 2007. This piece of upgrafe isn’t nearly banks. It displays S&P’s view of India’s total creditworthiness – the federal government’s capacity to repay debt.

Examine S&P International’s India Ranking of BBB- in June’2024.

Key causes cited by S&P for this ranking improve after 18 years are the next:

• Financial resilience and progress momentum: India is projected to stay one of many fastest-growing main economies. Its GDP progress will probably be round 7-8% yearly. The expansion will probably be primarily pushed by home demand, infrastructure investments, and companies exports.
• Fiscal consolidation: The federal government has been decreasing its fiscal deficit (from over 9% of GDP in the course of the pandemic to round 5-6% now). There are higher income collections, spending self-discipline, and reforms like GST. Decreased deficit will
• Improved banking sector well being: Decrease NPAs (dangerous loans), stronger capitalization, and structural reforms (e.g., the Insolvency and Chapter Code) have made the monetary system extra sturdy.
• Excessive overseas change reserves: At over $650 billion of overseas reserves, present a buffer towards exterior shocks, like risky oil costs or capital outflows.

S&P explicitly famous that these elements outweigh short-term dangers like US tariffs. It place India “among the many best-performing economies” globally.

They even talked about that the financial impression of US tariffs can be “restricted” resulting from India’s diversified commerce and home focus.

This improve aligns with related optimistic outlooks from different businesses like Moody’s and Fitch lately, although S&P had been extra cautious till now.

Understanding the Tariff Hike

The 50% tariffs we’re dialogue stems from the Trump administration’s insurance policies in 2025. Reciprocal tariffs are imposed on nations seen as participating in “unfair” commerce practices or bypassing US sanctions. One such India particular instance is continued purchases of discounted Russian oil amid the Ukraine battle.

The 50% tariff consists of the next:

• It features a 25% base tariff efficient August 7, 2025,
• Plus a further 25% set for August 27, 2025, concentrating on Indian items like textiles and auto elements.

The purpose to grasp listed below are these:

• These aren’t full “sanctions” like these on Iran or Russia. Negotiations might nonetheless soften them.
• India’s exports to the US are important ($86 billion yearly). They symbolize about 10% of India’s complete exports. India’s GDP for FY 2024-25 is roughly $3.94 trillion. Exports to the US, at $86.51 billion, represent about 2.2% of this GDP. The 50% US tariffs could scale back India’s GDP by roughly 0.19-0.8%. The impression of the tariff will probably be restricted as India financial system is usually domestic-driven.
• Let’s evaluate India with a rustic Vietnam which bought higher charges (20%) from the US. Our financial system is extra insulated than export-heavy friends like Vietnam. For Vietnam, the US exports are 30-40% of their GDP.

The pressure on US-India ties is actual. Even specialists name it a “difficult second.” However it’s extra about geopolitics. The problem is extra about India’s impartial stance on Russia, than India’s credit score profile.

Credit score scores from businesses like S&P concentrate on long-term monetary stability, not rapid commerce spats.

Tariffs may scale back 0.5-1% off India’s GDP progress within the brief time period, however S&P views this as manageable given India’s buffers.

Consider it like this:

• Rankings = Credit score report for borrowing: Based mostly on earnings (GDP), financial savings (reserves), debt administration, and future incomes potential. These are the locations the place India is doing fairly properly.
• Tariffs = A commerce dispute: Political, negotiable, and never a direct hit to debt compensation.

S&P is impartial (regulated however not managed by the US authorities. So it doesn’t imply that they’ll all the time bend to White Home insurance policies.

Although I’ll say that the timing of the ranking improve remains to be questionable. Is about Republican vs Democrats enjoying within the background? We will’t say this with surety.

How Ranking Improve Helps India

For context, evaluate scores of India’s opponents (as of mid-2025):

India’s improve places it on par with Indonesia and forward of Vietnam/Bangladesh.

Conclusion

US-India relations are multifaceted:

• Tense on commerce/Russia,
• However robust strategically e.g., protection tech transfers, Quad alliance towards China).

The improve may even sign to buyers that India is a protected guess amid international uncertainty.

The political impression brought on by excessive tariff may get offset by extra FDIs circulation resulting from ranking improve and India being a really massive financial system now.

If something that could be occurring behind-the-scenes is presumably India’s diplomacy relate to negotiating waivers on Russian oil whereas deepening US ties elsewhere.

General, I believe this isn’t as unusual because it appears when you. We should separate economics from politics.

Have a contented investing.