Jai Siya Ram

Here are the full details about India’s 3rd credit rating upgrade in 2025: the R&I (Japan) upgrade to BBB+ with stable outlook — what it means, why it happened, and what to watch.

What’s the news

• On 19 September 2025, Japanese agency Rating & Investment Information, Inc. (R&I) upgraded India’s long-term sovereign credit rating from BBB to BBB+, maintaining a Stable outlook.
• This is India’s third sovereign rating upgrade in five months. The first two were:
  1. Morningstar DBRS (from BBB(low) → BBB) in May 2025
  2. S&P Global (from BBB- → BBB) in August 2025

Why the upgrade was given — R&I’s reasons

R&I’s upgrade reflects several improvements and strengths in India’s economy. Key factors:

1. Domestic demand-led growth
   • India’s economy is being driven by consumption, investment, and strong momentum at home rather than being overly dependent on exports.
2. Improved fiscal discipline
   • The government has shown progress in reducing the fiscal deficit.
   • There have been subsidy rationalisations.
   • Tax revenues have been buoyant, helping government accounts.
3. External stability / macro stability
   • Features cited include a modest current account deficit, strong remittances, and good foreign exchange reserves.
   • India has “manageable level of debt” and outlook for debt/GDP ratio is improving.
4. Government policy & institutional strength
   • Efforts to attract foreign manufacturers, improve infrastructure, strengthen legal/institutional frameworks, reduce dependence on energy imports are viewed positively.
   • GST rationalisation (reducing tax slabs) also noted; though it may reduce some revenue, it is expected to stimulate consumption.
5. Risks considered limited
   • R&I says financial system risk is limited.
   • Some external risks exist (e.g. U.S. tariffs) but India’s exposure through those channels is not overly high.

What’s the significance

• Investor confidence: Upgrades tend to reduce borrowing costs for government and private sector, increase inflows of foreign investment.
• Lower risk premium: Debt-instruments (government bonds) may get more favourable terms.
• Global perception: Signals to international investors, rating markets, that India is strengthening, especially during global economic uncertainties.
• Policy validation: Validates India’s policies on infrastructure spending, macro management, subsidy rationalisation, etc.

What remains uncertain / challenges & watch-outs

• Consistency of growth: Maintaining growth in the mid-6% range is a challenge: global headwinds (inflation, interest rates, supply shocks) could slow momentum.
• Fiscal discipline: Keeping fiscal deficit under control, especially as government spends on infrastructure, welfare, subsidies etc. If deficit widens, rating could be at risk.
• External risks: U.S. tariffs, trade frictions, global economic slowdown could affect export demand & commodity prices.
• Inflation / monetary policy: Tight monetary policy globally might affect debt servicing costs.
• Weather, agriculture, global supply chain shocks are always wildcard risks for India.