India's credit rating upgraded to 'BBB' with 'Stable' trend: Morningstar DBRS

The key drivers for the ratings upgrade include India’s structural reforms through infrastructure investments, digitalisation, fiscal consolidation, sustained high growth with macroeconomic stability, and a resilient banking system.

"The global sovereign credit rating agency, Morningstar DBRS, upgraded India’s Long-Term Foreign and Local Currency – Issuer Ratings from BBB (low) to BBB with a Stable trend," a Finance Ministry statement issued on Friday said.

"India’s Short-Term Foreign and Local Currency Issuer Ratings were also upgraded to R-2 (high) from R-2 (middle) with a Stable trend," the statement said.

The upgrade is based on India’s structural reforms, which entail massive investments in infrastructure to spur growth and create employment and digitalisation, which facilitated fiscal consolidation reflected in declining debt and fiscal deficit levels and sustained high growth. India has clocked an average GDP growth of 8.2 per cent during FY22-25, with macroeconomic stability as inflation has come down, the exchange rate of the rupee is range-bound, and the country’s external balance is sound.

A resilient banking system featuring well-capitalised banks with a high capital adequacy ratio and a decline in non-performing loans to a 13-year low was another significant driver for the upgrade.

The credit rating may be further upgraded if India continues to implement reforms that raise the investment rate, enhancing 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, the 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.