• Global rating agency Morningstar DBRS has upgraded India’s sovereign rating to ‘BBB’, with a stable trend, citing structural reforms through infrastructure investments, and digitisation, besides macro economic stability.

• The trend on all ratings has returned to ‘stable’ from ‘positive’.

• The credit rating balances India’s public finance challenges with the economy’s high growth potential, DBRS Inc (Morningstar DBRS) said while upgrading India’s Long-Term Foreign and Local Currency Issuer Ratings to BBB from BBB (low).

• The upgrade reflects Morningstar DBRS’s view that the cumulative and ongoing benefits of India’s structural reform efforts are facilitating fiscal consolidation and helping sustain India’s high potential growth rate. The upgrade also reflects a more resilient banking system.

• It said that although heightened external risks due to the imposition of US tariffs could impact growth in the coming quarters, the Indian economy is not particularly reliant on trade.

• India’s favourable demographics, high savings, and potential catch-up in technological capabilities suggest that India's medium-term growth prospects remain strong. 

• Government’s efforts to improve the investment climate and build out both physical and digital infrastructure reinforce the country’s medium-term growth prospects, it said.

• India is actively engaged with the global agencies for rating upgrade.

Key drivers for the upgrade

• Key drivers for the upgrade include India’s structural reforms through infrastructure investments, digitalisation, etc, all of which facilitated fiscal consolidation (declining debt and deficit) and sustained high growth (average GDP growth of 8.2 per cent during FY22-25) with macroeconomic stability (stabilised inflation, range bound exchange rate and sound external balance).

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

• Morningstar DBRS also said that India’s credit rating may be further upgraded if India continues to implement reforms that raise the investment rate, enhance medium-term growth prospects.

Morningstar DBRS

• Morningstar DBRS is the world’s fourth largest credit ratings agency.

• It is a leading provider of independent credit rating services and opinions for corporate and sovereign entities, financial institutions, and project and structured finance instruments globally. 

• Rating more than 4,000 issuers and 60,000 securities, it is a market leader in Canada, the United States and Europe in multiple asset classes

• Morningstar DBRS empowers investor success by bringing more transparency and a much-needed diversity of opinion in the credit rating industry.

(The author is a trainer for Civil Services aspirants.)