Japan’s R&I upgrades India’s sovereign rating to BBB+; stable outlook

India earns its third credit rating upgrade this fiscal, with strong domestic demand, fiscal discipline, and improved external stability cited as key drivers.

New Delhi: India has secured its third sovereign credit rating upgrade this fiscal with Japan's Rating and Investment Information Inc (R&I) on Friday raising the country’s “currency issuer rating” from BBB to BBB+ with a stable outlook, citing strong domestic demand, fiscal discipline and improved external stability.

The agency has also affirmed India’s foreign currency short-term debt rating at a-2.

This comes nearly a month after New York-headquartered S&P Global upgraded India’s long-term sovereign credit rating to 'BBB' from 'BBB-‘. In May, Canada-based Morningstar DBRS’ upgrade India’s rating to ‘BBB’ (from BBB (low)), reaffirming the country’s position as one of the most dynamic and resilient major economies in the world.

"Three credit rating upgrades for India in five months reflect increasing global recognition for India’s robust and resilient macroeconomic fundamentals and prudent fiscal management, and underscore global confidence in India’s medium-term growth prospects amid prevailing global uncertainties," the Union Finance Ministry said in a statement.

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.

The sovereign rating upgrades pave the way for cheaper and more predictable access to foreign funds for the government as well as the private sector.

India has secured rare upgrades in sovereign ratings despite challenges to the economy due to global uncertainties, especially tariff tensions with the United States.

“The United States has raised its tariff rate on India to 50%. While this may pose a risk factor for the economic outlook, India's economy is mainly driven by domestic factors and its dependence on exports to the US is not high,” R&I said.  

On the Goods and Services Tax (GST) rate cut, R&I said its impact on the economy will be limited.

“Despite the uncertainties surrounding the global economic environment, India's economy can be expected to maintain firm growth thanks to the economic structures driven by domestic demand and the policies of the administration of Prime Minister Narendra Modi,” it said.

Explaining the rationale for the rating upgrade, R&I said, “the government has made progress in reducing the fiscal deficit at a moderate pace, and the government debt ratio will likely fall. In addition, external stability has been strengthened, as seen in the current account deficit staying at a low level, the narrowing negative net international investment position and other factors.”

On the economy, R&I said India would maintain real GDP growth rate in the mid-6% range from FY2026 onwards, backed by the population growth, the catch-up effect of income, and the government's public investment and economic policy among other factors.

The Reserve Bank of India has projected the country’s GDP growth for the current financial year at 6.5%.

“While the government aims to make India a developed economy by 2047, it is necessary to accelerate the economic growth in order to achieve this goal. Eyes are on the government's moves to see whether it will be able to upgrade the economic growth structure, while tackling the social issues such as poverty and unemployment simultaneously with pursuing fiscal consolidation,” the rating agency said.