Upgrade of India's Long-Term Credit Rating to 'BBB': An Examination of Its Implications
India's Long-Term Credit Rating Shines Brighter
In 2025, Morningstar DBRS, a renowned global rating agency, gave India a thumbs up by bumping up its long-term credit rating from 'BBB (low)' to 'BBB' and changing the outlook from 'Positive' to 'Stable'. This comes as good news for India, showing creditors that the nation is pretty capable of repaying debts, except during tough times.
'BBB' rating signifies that India is on the borderline between good and not-so-good creditworthiness. BBB stands two steps below the 'A' rating, with BBB+ being a notch higher.
The agency also took a step further by boosting India's short-term ratings to R-2 (high) from R-2 (middle), praising India's structural reforms, fiscal management, and a stable banking system. An R-2 (high) rating means that India is a secure bet for lenders, as it indicates the ability to pay back short-term debts without any issues.
Despite tensions brewing on the border with Pakistan, Morningstar DBRS predicts that these hostilities won't impact India's overall credit rating or economic growth in the slightest.
India is expected to hold its title as one of the fastest-growing economies in the world over the coming decade, with the International Monetary Fund (IMF) anticipating a 6.2% growth in 2025 and 6.3% in 2026. The Reserve Bank of India (RBI) is even more optimistic, predicting 6.5% growth in 2025 and 6.7% in 2026. As the world grapples with various challenges, domestic demand in India continues to be a major strength.
Post-pandemic, India has shown a remarkable recovery, bolstered by structural reforms, infrastructure development, and digitalization. Key factors like transparency in government financial accounts, quality improvements in spending, and a drastic drop in bad loans (2.5%, the lowest in 13 years) paint a rosy picture.
Inflation remains under control, within the RBI's target of 2%-6%. The foreign exchange sector is stable, and India's policies have helped it weather global storms, such as US tariffs.
Despite raising concerns about India's high public debt (80.2% of GDP) and large fiscal deficits, Morningstar DBRS acknowledges that the country's strong domestic savings, young population, and flexible exchange rate offset these risks.
India's digital transformation has been another vital factor in its growth. Initiatives like Jan Dhan, Aadhaar, and Mobile (JAM), accompanied by UPI's widespread adoption, have bolstered financial inclusion and improved digital payment access. Projections indicate that India's digital economy could account for 20% of its GDP by 2030.
It's worth mentioning that India's fiscal deficit reduction journey is well underway. The combined deficit of central and state governments has reduced from 13.1% of GDP in FY21 to 7.9% in FY24 and is projected to continue to diminish. The capital spending budget for FY25 stands at 3.1% of GDP.
The good news doesn't stop there. Inflation has eased, with the Consumer Price Index (CPI) inflation dropping to 3.3% in March 2025. The RBI predicts inflation to stay around 4% in FY26. The banking sector remains stable with bad loans at just 13-year lows, and India's foreign exchange reserves have reached an impressive $677 billion. The current account deficit is under control.
In order to receive a higher credit rating, Morningstar DBRS suggests that India should continue implementing reforms to attract investment and improve long-term growth, and substantially reduce public debt. Conversely, a downgrade could occur if India's debt-to-GDP ratio climbs significantly or if macroeconomic policies weaken over time.
References:- [1] Morningstar DBRS, (2025, March). India Long-Term Foreign and Local Currency Rating Outlook Revised to Stable from Positive; Rating Affirmed at BBB (low).- [2] International Monetary Fund, (2025, April). World Economic Outlook Update.- [3] Reserve Bank of India, (2025, February). Monetary Policy Report.- [4] Ministry of Finance, Government of India, (2024, October). Economic Survey 2024-25.- [5] NITI Aayog, Government of India, (2025, January). India Development Update.
- Despite the border tensions with Pakistan, Morningstar DBRS predicts that India's overall credit rating and economic growth will not be affected.
- Morningstar DBRS raised India's long-term credit rating to 'BBB' and its short-term ratings to R-2 (high), praising India's structural reforms and fiscal management.
- The International Monetary Fund expects India to be one of the fastest-growing economies in the world, with a predicted growth of 6.2% in 2025 and 6.3% in 2026.
- India's digital transformation, with initiatives like Jan Dhan, Aadhaar, Mobile (JAM), and UPI's widespread adoption, has bolstered financial inclusion and improved digital payment access.
- Inflation remains under control in India, with the RBI's target of 2%-6% being met, and the foreign exchange sector is stable.
- In order to receive a higher credit rating, Morningstar DBRS suggests that India should continue implementing reforms to attract investment, improve long-term growth, and substantially reduce public debt.
