India’s sovereign rating upgraded to BBB+ by Japan’s R&I; third ratings upgrade this year

India’s long-term sovereign rating has been upgraded to BBB+ by Japanese credit ratings agency Rating and Investment Information Inc. (R&I), a move which the Indian government has welcomed, the Ministry of Finance said on Friday. R&I also retained the “stable” outlook for the Indian economy.

It should be noted that this is the third such upgrade given by a sovereign credit ratings agency this year, after S&P’s upgrade to ‘BBB’ (from BBB-) in August and Morningstar DBRS’ upgrade to ‘BBB’ (from BBB (low)) in May. These upgrades, according to the ministry, reaffirm India’s position as one of the most dynamic and major resilient economies in the world.

According to R&I, the upgrade is supported by India’s position as one of the world’s largest and fastest-growing economies, underpinned by its demographic dividend, robust domestic demand, and sound government policies. The credit ratings agency also acknowledges the progress in fiscal consolidation by the Government, driven by buoyant tax revenues and rationalisation of subsidies, and a manageable level of debt, along with high growth.  

It also highlighted India’s strengthened external stability, reflected in a modest current account deficit, stable surpluses in services and remittances, a low external debt-to-GDP ratio, and sufficient foreign exchange reserves. R&I also averred that the risk associated with the financial system remains limited.

“While the government has been increasing capital expenditures, it has managed to reduce the fiscal deficit thanks to the tax revenue increase backed by the strong domestic demand as well as the cut of subsidies”, the agency noted in its statement.

The agency acknowledged the recent increase in tariffs by the U.S. as a risk factor. The risk factor notwithstanding, R&I observed that India’s limited reliance on U.S. exports and its domestic demand-driven growth model will cushion the impact.

Furthermore, it observed that while the GST rationalisation will result in revenue losses, the negative impact will likely be made up, to some extent, by the stimulation of private consumption.

In its note, R&I also praised the policy framework of the administration of Prime Minister Narendra Modi, which is primarily aimed at attracting foreign manufacturers to India, developing infrastructure, institutionalising the legal framework to improve the business environment, reducing reliance on energy imports, and ensuring economic security.

“The Government of India remains committed to building on this momentum through policies that promote inclusive, high-quality growth alongside fiscal prudence and macroeconomic stability,” the ministry said in a statement.

Reacting to R&I’s ratings upgrade, Anish Shah, CEO and MD, Mahindra Group, said, “The third sovereign rating upgrade for India in just five months is a strong vote of confidence in India’s economic resilience and growth trajectory. The recognition by R&I, following S&P and Morningstar DBRS earlier this year, reaffirms that India’s robust macroeconomic fundamentals, prudent fiscal management, and sustained reforms are being acknowledged globally,” in a statement.

According to Shah, the ratings upgrade also underscores the confidence the world places in India’s ability to deliver inclusive and sustained growth, even amid global uncertainties. “As the Indian industry, we remain committed to partnering with the Government to build on this momentum and further strengthen India’s position as one of the world’s most dynamic economies.”