Japanese credit rating agency Rating and Investment Information, Inc. (R&I) has upgraded India’s long-term sovereign credit rating to ‘BBB+’ from ‘BBB’, while retaining the “stable” outlook for the Indian economy.
This is the third such upgrade by a sovereign credit rating agency this year, following S&P’s upgrade to ‘BBB’ (from BBB-) in August and Morningstar DBRS’ upgrade to ‘BBB’ (from BBB (low)) in May, reaffirming India’s position as one of the most dynamic and resilient major economies in the world.
As per R&I’s India sovereign rating review published on Friday, the upgrade is supported by India’s position as one of the world’s largest and fastest-growing economies, underpinned by its demographic dividend, robust domestic demand, and sound government policies.
R&I in its report recognises the progress in fiscal consolidation by the government, driven by buoyant tax revenues and rationalisation of subsidies, and manageable level of debt along with high growth. It also highlights India’s strengthened external stability, reflected in modest current account deficit, stable surpluses in services and remittances, low external debt-to-GDP ratio, and sufficient forex cover.
The agency further stated that the risks associated with the financial system remain limited.
“While the government has been increasing capital expenditures, it has managed to reduce the fiscal deficit thanks to the tax revenue increase backed by the strong domestic demand as well as the cut of subsidies,” the agency noted in its statement.
The recent increase in tariffs by the US was acknowledged as a risk factor by the agency. However, it observed that India’s limited reliance on US exports and its domestic demand-driven growth model will contain the impact. Further it observed that while the GST rationalisation will result in revenue losses, the negative impact will likely be offset to some extent by the stimulation of private consumption.
The agency also praised the policies of the administration of Prime Minister Narendra Modi aimed mainly at attracting foreign manufacturers to India, developing infrastructure, institutionalizing the legal framework to improve the business environment, reducing the reliance on energy imports and ensuring economic security.