India Country Risk Rating
Overall risk in India remains at a medium rating.
India’s overall rating remains at medium. In terms of domestic politics, the picture is fluid. The BJP has done well in state elections including a victory in West Bengal in April. However, some tension exists among Gen Z voters over unemployment, which has generated a fake protest party – the Cockroach Janta party. This protest has been so strong that it forced the education minister to resign. Additionally, voter concerns over restrictions to discourage fuel usage have also been seen. Meanwhile, Pakistan’s attempt to hold assembly elections in Gilgit-Baltistan (territory New Delhi considers illegally occupied) has drawn severe criticism from India. Separately, India's suspension of the Indus Waters Treaty following the Pahalgam attack last year has added a significant water-sharing dimension to an already strained bilateral relationship, raising the prospect of a conflict. With the Uttar Pradesh elections in November, a moderately high risk exists of war. However, any military escalation, should it materialise, is expected to be short in duration, a matter of days rather than a prolonged conflict.
On the economic front, the Iran war is a headwind to growth but also boosting inflation. The IMF projects a slowdown in GDP growth to 6.5% in 2026, with an inflation rise to 4.7%. Additionally, the super El Nino in the Pacific could weaken the monsoon and hurt rural income/consumption while also boosting food prices. However, a dovish Reserve Bank of India (RBI) is reluctant to hike policy rates, if the inflation pick up is temporary and given the slowdown in the economy. Though the Indian Rupee (INR) is weak this is not excessive and RBI is using FX intervention to slow the weakening trend against the USD. The soft 2026 economic picture also means some slippage in fiscal consolidation, but a reduction in the high government debt/GDP picture remains the multi-year view given high nominal GDP growth. This keeps the inability to provide fiscal stimulus at medium. The banking sector is also in a reasonable situation, and this keeps the banking sector vulnerability risk at medium-low.