Global shocks no worry, India stays investors’ darling: S&P Global Ratings President Yann Le Pallec
While geopolitics remains a significant global risk, for India this will mean not a decisive threat but one of the few manageable downsides, the Frenchman said. “For now, global investors continue to view India as one of the most attractive destinations for capital seeking stable, long-term growth opportunities,” Pallec said. During the interaction, he discussed India’s growth prospects, global rate fluctuations and their role in fueling new surges in debt assets, global risks arising from record government debt and the growing impact of artificial intelligence on the financial environment.
Edited excerpts:
While S&P upgrades India’s sovereign rating to ‘BBB’, could rising trade frictions, changing US tariffs and geopolitical tensions cloud India’s growth or rating outlook?
We upgraded India’s rating to BBB from stable a few months ago, taking into account India’s economic resilience, stable policy framework and ongoing investments in physical and energy infrastructure. Our ratings are forward-looking and we expect this flexibility to continue; GDP growth of about 6.5% this year will rise to about 7% in the next two years; This is impressive for one of the world’s 5 largest economies.
We also expect steady fiscal consolidation and policy stability, especially regarding tariffs. India’s large domestic market helps cushion global shocks; Exports to the US account for only 2% of GDP. Geopolitics remains a significant global risk creating volatility and uncertainty, but it is one of the few manageable headwinds rather than a decisive threat to India.
What key risks do Indian policymakers need to pay attention to in the near term?
From an external perspective, we see that the potential to strengthen India’s growth outweighs the real downside risks. This momentum is remarkable; Several of the top five economies were able to sustain growth of around 7% throughout the decade. The IMF recently stated that achieving India’s 2047 targets will require growth of over 8% for the next 20 years; This is an ambitious but achievable figure with the right measures. Strengthening workforce participation, increasing inclusion, and mobilizing larger pools of public and private capital for both physical and digital infrastructure will be important. Increasing domestic consumption and reducing inequality will also help increase well-being. We do not see a major risk of refinancing or a hard landing as the balance sheets of banks and companies have improved significantly post-Covid, strengthening India’s resilience and growth outlook.
Global interest rate cycles have triggered a new wave of volatility in debt markets. How are these changes changing capital flows to emerging economies like India?
Our economists expect the Reserve Bank of India to cut interest rates by 25 basis points by the end of the year. As capital moves out of the US, India is emerging as a major investment destination benefiting from strong headwinds. However, if US interest rate cuts accelerate towards the end of this year, India’s relative attractiveness may decrease. For now, global investors continue to see India as one of the most attractive destinations for capital seeking stable, long-term growth opportunities. Global government debt has risen to record levels. In your opinion, how sustainable is this trend and at what point does the debt begin to materially weaken the credit quality of the state?
Each country rating is determined on a case-by-case basis through a detailed analysis based on a publicly available methodology. But relativity is important as we rank around 140 rulers and this is a finite universe so there are constant comparisons. Since the global financial crisis, there has been a gradual erosion in the credit quality of major powers, mainly driven by fiscal deficits and rising debt levels. It’s not about short-term sustainability, it’s about long-term trends. Over time, the credit quality of major powers weakened. The question is when this will become a threat to global financial stability. To assess this, we look at the broader picture: Public leverage has increased, but corporate leverage is lower and household debt remains relatively stable.
With India’s inclusion in global bond indices, do you foresee an improvement in foreign investors’ assessment of India’s sovereign and corporate debt risk?
And so it happens. You are right, compared to GDP, both India’s stock and bond markets still have growth potential. However, many positive changes are taking place. The inclusion of Indian bonds in global indices will attract more investors, while Crisil will continue to play a key role in increasing transparency for domestic institutions. Through our GIFT City operations, S&P Global Ratings aims to do the same for international investors by providing a clearer view of India’s credit environment. As issuance and trade expand, liquidity will become stronger. Of course, continuing regulatory and tax reforms would help. Creating deeper capital markets is a multifaceted effort; India must continue to nurture its strong domestic base while attracting more foreign capital to finance its ambitious physical and digital infrastructure targets.
Private credit is rapidly emerging as an alternative engine of corporate finance. How do you see this evolution changing the nature of capital formation and risk-taking?
The rise of private equity and non-bank financial institutions in India is a healthy development on paper. It reduces dependence on traditional banks by diversifying the sources and nature of credit, especially for companies. However, it is equally important to understand the fundamental connections between these institutions and the regulated banking system, particularly any concentrations of exposure that could create systemic risks. There is currently a certain level of transparency in private markets. In an article we published in July, we highlighted that regulation and regular credit ratings for private players could provide much-needed transparency and clarity. The most disintermediated financial market, the United States, shows that diversified financing from banks, markets and private investors can work well only if the connections between all participants are clearly understood and monitored.
Critics say global rating frameworks are biased against developed economies. How does S&P counter the claim that emerging markets are underrated by default?
Our global rating framework follows a consistent scale and calibration worldwide. This means that sovereign or corporate rating in India is comparable to that in any other country. Some local investors may find this less relevant as their risk criteria are different and this is exactly why Crisil provides tailor-made Indian ratings to the local financial community. At S&P Global Ratings, our role is to ensure global consistency for international investors comparing risks across markets. We welcome competition and different perspectives; If another institution offered a better approach, it would be healthy for the ecosystem. What we compete against is quality, transparency and analytical rigor; ensures our ratings stand the test of time and meet regulatory standards through ongoing backtesting and validation.
How S&P is using AI to make credit scores faster and more accurate without losing human judgment and transparency.
Artificial intelligence is an incredible opportunity for our business. Credit scores are ultimately based on three pillars. The first is the critical judgment applied to the loan. In today’s world, financial innovation, especially in private markets, structured finance, is blurring the traditional boundaries between companies and funds. Transactions now require analysts to combine multiple methodologies and evaluate the true economic and credit context. Human judgment connecting the dots is vital here. The second pillar is thought leadership. Today, investors care less about the base case and more about understanding the downside, such as how risks such as climate change, energy transition or geopolitics may arise. The third is engagement. Generative AI will automate routine analysis, allowing analysts to focus on deeper, forward-looking conversations with investors. It enhances rather than replaces the human insight that defines our work.
With ESG under scrutiny for greenwashing and inconsistent standards, how do you ensure these ratings regain trust and credibility?
As a trusted and independent brand, we provide second-party opinions in India to help both domestic and foreign investors evaluate sustainability-related instruments. These views evaluate how well a green or sustainable bond complies with globally accepted standards. What sets S&P Global Ratings apart is our shading framework, a global reference point that ranges from dark green to red, with light and midtones in between. This provides an additional layer of transparency by showing how closely an instrument supports the issuer’s transition to a lower-carbon economy. We believe this deeper insight helps sustainability investors make more informed decisions based on clarity and consistency.
