Third upgrade in 2025! Japan’s R&I raises India’s sovereign rating to BBB+; cites strong growth outlook and fiscal discipline

Japan’s Rating and Investment Information, Inc. (R&I) has upgraded India’s long-term sovereign credit rating from ‘BBB’ to ‘BBB+’ with a Stable Outlook, marking the country’s third sovereign rating upgrade in 2025. The move emphasizes confidence in India’s domestic demand-driven growth and prudent fiscal management, the Government of India announced on Thursday.“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” R&I said in its review.The upgrade follows similar moves by S&P in August, which raised India’s rating from ‘BBB-’ to ‘BBB’, and by Morningstar DBRS in May, which upgraded India from ‘BBB (low)’ to ‘BBB’.R&I attributed its decision to India’s position as one of the world’s largest and fastest-growing economies, supported by its demographic dividend, robust domestic demand and government policies. It said fiscal consolidation had advanced, driven by buoyant tax revenues, rationalised subsidies, high growth rates and a manageable debt level.“The government has made progress in reducing the fiscal deficit at a moderate pace, and the government debt ratio will likely fall,” the rating agency noted.External stability, it said, was reinforced by a modest current account deficit, steady surpluses in services and remittances, low external debt-to-GDP ratio and sufficient foreign exchange reserves. Risks in the financial system were assessed as limited.R&I pointed out that fiscal deficit reduction was achieved through higher tax revenue and subsidy cuts, even as capital expenditure increased. It praised the Union government’s economic policies, including measures to attract foreign manufacturers, develop infrastructure, strengthen the business environment, reduce energy import dependence and safeguard economic security.While cautioning about risks from higher US tariffs, the agency observed that India’s low reliance on US exports and its domestic demand-led model would cushion the impact. It added that GST rationalisation might lead to revenue losses, though private consumption would partly offset the effect. “In August 2025, the government announced the plan to simplify the GST to a two-tier structure, and will implement it in September. While the tax change will result in revenue losses due to tax rate reduction, the negative impact will likely be offset to some extent by the stimulation of private consumption. The possibility that the fiscal deficit will surpass the government plan considerably is limited, in R&I’s view” the rating agency stated. Welcoming the development, the Government of India said the upgrade affirms India’s resilient macroeconomic fundamentals and prudent fiscal management. It added that the recognition underscores global confidence in India’s medium-term growth prospects amid global uncertainties.The government reiterated its commitment to inclusive, high-quality growth, backed by fiscal prudence and macroeconomic stability.