Sovereign Ratings vs. Reality: India’s Case for a Higher Rating

Research evidence excerpt

Sovereign Ratings vs. Reality: India’s Case for a Higher Rating

Deutsche Bank

Research

Asia Economics Date

India 18 June 2026

Asia Economic

Notes

Sovereign Ratings vs. Reality: India’s

Case for a Higher Rating

Kaushik Das

*** Please see the link to the full report on the Deutsche Bank Research Institute

Chief Economist

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A cross-country comparison based on latest IMF data reveals important insights

into India’s fiscal position and sovereign rating relative to global peers. Advanced

economies such as Japan, Italy, the United States, France and the United Kingdom

continue to carry substantially higher public debt burdens—ranging from around

100% to over 200% of GDP—yet maintain significantly stronger sovereign ratings.

In contrast, India’s public debt ratio, is lower relative to these economies. This

divergence suggests that sovereign ratings are influenced by a broader set of

factors beyond debt levels alone, and that India’s rating appears conservative when

viewed purely through the lens of debt metrics.

India’s fiscal deficit, at around 7.4% of GDP in 2025, remains elevated relative to

many peers and represents a key constraint in its sovereign assessment. However,

forward-looking projections indicate a sustained path of fiscal consolidation. The

deficit is expected to decline gradually to approximately to 6.6% of GDP by 2031,

while the debt-to-GDP ratio is projected to fall toward mid-70s over the same period,

as per IMF forecasts. This improvement is underpinned by expectations of strong

nominal GDP growth, rising revenue buoyancy, and continued restraint in

expenditure. In fact, India’s debt trajectory appears more favorable than that of

several major economies, where debt ratios are projected to increase further in the

coming years.