India’s long-term credit rating has been improved from ‘BBB (low)’ to ‘BBB’ by Morningstar DBRS, a global sovereign credit rating agency. The country’s credit outlook has been revised to ‘Stable’ from ‘Positive’.
BBB means the country or company is good at paying back debt, but not perfect. They can usually pay their debts, but may struggle in tough times. BBB is a step below BBB+, and two steps below the A rating.
The agency has also raised India’s short-term ratings to R-2 (high) from R-2 (middle), citing structural reforms, better fiscal management, and a stronger banking system.
R-2 (high) means the country or company is good at paying back short-term debts and is a safe bet for lenders.
Despite ongoing tensions on the borders with Pakistan, DBRS does not expect them to affect India’s overall credit rating or economic growth.
India is expected to remain one of the world’s fastest-growing economies in the coming decade. The International Monetary Fund (IMF) forecasts GDP growth of 6.2% in 2025 and 6.3% in 2026. The Reserve Bank of India (RBI) expects even higher growth, at 6.5% in 2025 and 6.7% in 2026. Despite global challenges, domestic demand continues to be a major strength.
Morningstar DBRS pointed out India’s strong recovery after the pandemic, with GDP growing at an average of 8.2% between FY22 and FY25. Key factors like reforms, infrastructure development, and digitalisation have supported this growth.
The government has made its financial accounts more transparent, and spending quality has improved. Banks are also in a better state, with bad loans dropping to 2.5%, the lowest in 13 years.
Inflation is under control, staying within the Reserve Bank of India (RBI)’s target of 2% to 6%. The external sector is stable, and India’s policies have helped it handle global challenges, such as US tariffs.
DBRS raised concerns about India’s high public debt, which is at 80.2% of GDP, and large fiscal deficits. While these are risks, India’s strong domestic savings, young population, and flexible exchange rate help balance out these issues.
India’s digital transformation is another key factor supporting its growth. Initiatives like Jan Dhan, Aadhaar, and Mobile (JAM), along with the widespread adoption of UPI, have boosted financial inclusion and made digital payments easier, the report said. Projections suggest that India’s digital economy could contribute 20% of its GDP by 2030.
A challenge for India has been its fiscal deficit, but there has been progress. The combined deficit of central and state governments has reduced from 13.1% of GDP in FY21 to 7.9% in FY24, and it is expected to continue falling. The capital spending budget for FY25 is 3.1% of GDP.
Inflation has eased, with Consumer Price Index (CPI) inflation falling to 3.3% in March 2025, the report says. The RBI expects inflation to stay around 4% in FY26. The banking sector remains stable, with bad loans at a 13-year low. India’s foreign exchange reserves are strong at $677 billion, and its current account deficit is under control.
Morningstar DBRS may raise India’s credit rating if the country continues to implement reforms that attract investment and improve long-term growth, and if it significantly reduces public debt. That said, a downgrade could occur if India’s debt-to-GDP ratio increases significantly or if macroeconomic policies weaken.
