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New Delhi: Global rating agency Morningstar DBRS has upgraded India’s sovereign rating to ‘BBB’, with a stable trend, citing structural reforms through infrastructure investments, and digitisation, besides macro economic stability. The credit rating balances India’s public finance challenges with the economy’s high growth potential, DBRS Inc (Morningstar DBRS) said while upgrading India’s Long-Term Foreign and Local Currency Issuer Ratings to BBB from BBB (low). “The upgrade reflects Morningstar DBRS’s view that the cumulative and ongoing benefits of India’s structural reform efforts are facilitating fiscal consolidation and helping sustain India’s high potential growth rate. The upgrade also reflects a more resilient banking system,” DBRS Morningstar said.

It said that although heightened external risks due to the imposition of US tariffs could impact growth in the coming quarters, the Indian economy is not particularly reliant on trade. India’s favourable demographics, high savings, and potential catch-up in technological capabilities suggest that India’s medium-term growth prospects remain strong. Government efforts to improve the investment climate and build out both physical and digital infrastructure reinforce the country’s medium-term growth prospects, it said.

Sharing Morningstar DBRS’ sovereign rating upgrade, the Finance Ministry in a statement said, “the rating scale for Morningstar DBRS is similar to the Fitch and S&P rating scales (Morningstar DBRS uses ‘high’ and ‘low’ as suffixes compared to the +/- nomenclature used by Fitch and S&P).” While S&P Global Ratings, last year, upped India’s outlook to positive with a ‘BBB-‘ rating, Fitch maintains a stable outlook on ‘BBB-‘, which is the lowest investment grade rating.

India is actively engaged with the global agencies for rating upgrade, which the latter says is contingent upon reduction in public debt. Key drivers for the upgrade include India’s structural reforms through infrastructure investments, digitalisation etc., all of which facilitated fiscal consolidation (declining debt and deficit) and sustained high growth (average GDP growth of 8.2 per cent during FY22-25) with macroeconomic stability (stabilised inflation, range bound exchange rate and sound external balance).

A resilient banking system featuring well-capitalised banks with a high capital adequacy ratio and a 13-year low non-performing loans was another significant driver for the upgrade. Canada-headquartered Morningstar DBRS also said that India’s credit rating may be further upgraded if India continues to implement reforms that raise the investment rate, enhance medium-term growth prospects. The report also stated that despite the current public debt levels, risks to debt sustainability are limited due to local currency denomination and long maturity structures. Further, continued reforms and a reduction in the public debt-to-GDP ratio could bring further upgrades.

Morningstar DBRS said on a general government basis, the public debt-to-GDP ratio has moderated since the shock of the pandemic but remains high at 80.2 per cent in FY25. On the other hand, structural factors of the economy, such as relatively high domestic savings and favourable demographics, continue to underpin the country’s high growth potential. “India’s well-regulated financial system, credible inflation-targeting regime, and flexible exchange rate also enhance the economy’s resilience to shocks,” it added.