India’s Sovereign Credit Rating Upgraded to ‘BBB’ by Morningstar DBRS

Morningstar DBRS, a leading global credit rating agency, has upgraded India’s sovereign credit rating outlook, citing robust structural reforms, sustained macroeconomic stability, and consistent fiscal consolidation. The agency elevated India’s Long-Term Foreign and Local Currency – Issuer Ratings from BBB (low) to BBB, affirming a Stable trend. Additionally, India’s Short-Term Foreign and Local Currency Issuer Ratings saw an upward revision from R-2 (middle) to R-2 (high), also with a Stable trend.

This upgrade marks a positive endorsement of India’s economic policy direction and resilience, particularly in the face of global headwinds over the past few years.

Key Drivers Behind the Upgrade

1. Sustained Economic Growth

India’s real GDP has posted strong performance figures, averaging 8.2% annually during FY2022 to FY2025. This consistent growth trajectory reflects not only domestic demand strength but also increasing export competitiveness, industrial output, and a growing digital economy. The report underscores that India’s economy has emerged as one of the fastest-growing major economies globally, even amid global geopolitical uncertainties.

2. Fiscal Consolidation and Debt Management

Morningstar DBRS notes significant strides in fiscal consolidation, characterized by a declining fiscal deficit and a manageable debt profile. While India’s public debt remains relatively high in absolute terms, the risk to debt sustainability is limited due to several mitigating factors:

• A large proportion of debt is denominated in local currency.

• The maturity profile is long, reducing rollover risks.

• Inflation and interest rates remain stable, contributing to reduced real borrowing costs.

Continued reduction in the public debt-to-GDP ratio, particularly if combined with further reforms, could lead to additional rating upgrades in the future.

3. Macroeconomic Stability

The rating agency also praised India for maintaining macroeconomic stability, which has been instrumental in supporting investor confidence and economic planning. Key highlights include:

• Stabilized inflation within manageable bounds, aided by prudent monetary policy.

• A range-bound exchange rate, reducing volatility and risk premiums for international investors.

• A sound external balance, with manageable current account deficits and stable foreign exchange reserves.

4. Reforms and Investment Climate

The government’s focus on structural reforms, particularly through infrastructure investments, energy transition policies, and a push toward digital public goods (like Aadhaar, UPI, and account portability), was recognized as instrumental in shaping India’s new growth framework.

These reforms have fostered a more conducive environment for both domestic and foreign investment, enhancing productivity and long-term potential output.

5. Resilient Banking Sector

India’s banking system, which had faced stress during the previous decade, has now emerged significantly more resilient. Morningstar DBRS noted:

• A high capital adequacy ratio across banks.

• Non-performing assets (NPAs) at a 13-year low, reflecting better asset quality and risk management.

• Improved governance and the adoption of digital banking services which have expanded access and transparency.

Outlook and Scope for Future Upgrades

While the current outlook is rated as Stable, Morningstar DBRS mentioned that further reforms to boost investment rates and improve the efficiency of public spending could result in future upgrades. Emphasis was placed on:

• Enhancing private sector participation in capital formation.

• Advancing labor and land market reforms.

• Improving education and health outcomes to maximize demographic dividends.

Despite the high public debt, the agency acknowledged that India’s prudent fiscal approach, long-term maturity structure, and local currency dominance limit any immediate risks to sustainability.

Comparative Rating Context

Morningstar DBRS follows a rating system comparable to global peers such as Fitch Ratings and Standard & Poor’s (S&P). The distinction lies in the use of suffixes like "high", "middle", and "low", as opposed to the + / - grading approach used by others. A BBB rating places India in the investment grade category, indicating moderate credit risk and affirming the country's capacity to meet its financial commitments.

Access the Full Report For those interested in the detailed methodology and analysis behind this rating change, the complete report is available at: 🔗 Morningstar DBRS India Sovereign Rating Upgrade