Key Points

"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," noted the R&I rating review

This marks the third sovereign rating upgrade for India in 2025. Earlier, S&P raised India's rating from 'BBB-' to 'BBB' in August, and Morningstar DBRS upgraded from 'BBB (low)' to 'BBB' in May.

According to the R&I rating review, the upgrade reflects India's status as one of the world's largest and fastest-growing economies, supported by its strong demographic dividend, robust domestic demand and prudent government policies.

R&I also noted that fiscal consolidation has progressed, driven by buoyant tax revenues, rationalised subsidies, high growth rates and a manageable level of debt.

"The government has made progress in reducing the fiscal deficit at a moderate pace, and the government debt ratio will likely fall", noted the rating agency.

External stability is strengthened, it said, citing a modest current account deficit, stable surpluses in services and remittances, a low external debt-to-GDP ratio and sufficient foreign exchange cover.

The agency assessed risks in the financial system as limited. It highlighted that while government capital expenditure has been increasing, fiscal deficit reduction has been achieved through higher tax revenue (backed by strong domestic demand) and subsidy cuts.

"The administration led by Prime Minister Narendra Modi has pushed ahead with economic policies aimed mainly at attracting foreign manufacturers to India, developing infrastructures, institutionalizing the legal framework to improve the business environment, reducing the reliance on energy imports and ensuring the economic security." noted the rating agency.

R&I acknowledged risk factors such as recent increases in U.S. tariffs, but observed that India's low reliance on U.S. exports and its domestic demand-driven growth model would mitigate impacts.

Further, the agency pointed out that rationalisation of Goods & Services Tax (GST) may lead to revenue losses, though such negative effects are likely to be partly offset by stimulated private consumption.

The government policies under Prime Minister Narendra Modi were also praised. These include efforts to attract foreign manufacturers, infrastructure development, strengthening of legal and institutional frameworks for business, reduced dependence on energy imports, and ensuring economic security.

The Government of India said it welcomes this upgrade as an affirmation of India's resilient macroeconomic fundamentals and prudent fiscal management. It added that the upgrade underscores global confidence in India's medium-term growth prospects amid prevailing global uncertainties.

The Government remains committed to building on this momentum through policies promoting inclusive, high-quality growth alongside fiscal prudence and macroeconomic stability.

- ANI