S&P Upgrade to Boost Foreign Capital Inflows, Lower Borrowing Costs for India: Bank of Baroda Economist

After the recent credit rating upgrade by S&P, Foreign capital inflows into India are expected to accelerate. Bank of Baroda (BOB) economist Sonal Badhan has made this claim. She said that this is also expected to reduce the cost of borrowing for the country.

Badhan said that this upgrade has increased confidence in India's 'strong foundation' and 'growth pace'. This will have a positive impact on foreign capital investment in both the short and long term. This year, FPI investment is expected to increase, and bond yields are expected to decline. She said that the cost of borrowing will be lower for both the government and the corporate sector.

RBI's annual financial account data for the second quarter of FY 2024-25 (July-September 2024) indicates that net foreign direct investment witnessed a sell-off of $2.2 billion. Whereas in FY 2023-24, there was a sell-off of $0.8 billion during the same quarter. According to government data, India recorded provisional FDI inflows of $81.04 billion in FY 2024-25. This is 14 per cent higher than $71.28 billion in FY 2023-24.

He further said that although the government will have more scope to borrow, we believe that it is less likely to be used by the government. In the Union Budget for FY 2026, the Center had committed to gradually bring down its debt-GDP ratio. This indicates that the government intends to keep the borrowing program limited. The economist said that in the Union Budget for FY26, the Centre had committed to gradually bring down its debt-GDP ratio. This means that it intends to keep the borrowing programme limited.