India secures third credit rating upgrade in FY26 as Japan’s R&I lifts outlook

New Delhi: India notched its third sovereign credit rating upgrade this fiscal year with Japan’s Rating and Investment Information Inc. (R&I) raising the country’s long-term rating to BBB+ from BBB, with a ‘stable’ outlook.

The move follows similar upgrades by S&P Global in August and Morningstar DBRS in May, marking a rare streak of upgrades for a major emerging economy at a time of global uncertainty.

R&I’s rating upgrade for India on Friday comes as the economy navigates tariff wars in a volatile world.

A stronger credit rating enhances India’s standing in global capital markets, paving the way for cheaper and more predictable access to funds for both the government and private sector.

For nearly two decades, India’s sovereign debt remained at the lowest investment grade of BBB- at S&P. With the latest reassessments, it has now risen above that threshold. Earlier this year, Morningstar DBRS upgraded India’s rating to BBB from BBB (low).

To be sure, economists and policymakers have long pressed for a higher rating, citing India’s strong fundamentals and sustained efforts at fiscal consolidation.

R&I highlighted buoyant tax revenues, fiscal discipline, and resilient domestic demand as reasons for India’s sovereign debt ratings upgrade.

The agency also underscored the Indian government’s ability to reduce fiscal deficit while maintaining elevated public investment. It also pointed to external resilience, supported by modest foreign debt, a manageable current account deficit, and steady inflows from services and remittances.

“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 of Prime Minister Shri Narendra Modi,” R&I said in a statement.

“The government has made progress in reducing the fiscal deficit at a moderate pace, and the government debt ratio will likely fall. In addition, external stability has been strengthened, as seen in the current account deficit staying at a low level, the narrowing negative net international investment position, and other factors,” it added.

Limited risk

R&I added in its statement that its rating upgrade for India reflected the “recognition that the risk related to the financial system is limited.”

India’s economy is projected to grow 6.5% in FY26, the Reserve Bank of India said, citing strong consumption and public investment.

The central government aims to narrow the fiscal deficit to 4.4% of GDP in FY26 from 4.8% in FY25, extending its path of long-term fiscal consolidation.

“R&I believes that the economy will maintain the growth rate in the mid-6% range from FY2026 onwards, backed by the population growth, the catch-up effect of income, and the government's public investment and economic policy, among other factors,” R&I said in the statement.

“The external debt ratio to GDP is low, and foreign exchange reserves are sufficient to cover imports and short-term external debts. The concern on an external front is small,” it added.

Among major rating agencies, Moody’s has a Baa3 rating for India with a stable outlook, while Fitch has BBB-, both at the lowest investment grade.

“The Government of India welcomes the decision by the Japanese credit rating agency, Rating and Investment Information, Inc. (R&I), to upgrade India’s long-term sovereign credit rating to ‘BBB+’ from ‘BBB’, while retaining the ‘Stable’ Outlook for the Indian economy,” the Union finance ministry said in a statement.

“Three credit rating upgrades for India in five months reflect increasing global recognition for India’s robust and resilient macroeconomic fundamentals and prudent fiscal management, and underscore global confidence in India’s medium-term growth prospects amid prevailing global uncertainties,” it added.