Fitch affirms India ratings at BBB- with stable outlook on robust growth

Strong demand and solid external finances support rating; high debt and fiscal gaps remain key constraints, Fitch says

Fitch Ratings on Monday affirmed India rating at BBB- with a stable outlook on the back of robust growth and solid external finances. The credit rating agency mentioned that the fiscal metrics are a credit weakness, with high deficits, debt and debt service compared with ‘BBB’ peers. Lagging structural metrics, including governance indicators and GDP per capita, also constrain the rating, it said.

 

Fitch said that India’s economic outlook remains strong relative to peers, even as momentum has moderated in the past two years. It forecasted gross domestic product (GDP) growth of 6.5 per cent in the current financial year ending March 2026 (FY26), unchanged from FY25.

 

 

“Domestic demand will remain solid, underpinned by the ongoing public capex drive and steady private consumption. However, private investment is likely to remain moderate, particularly given heightened US tariff risks. There has been a notable slowdown in nominal GDP growth, which we forecast to expand 9.0 per cent in FY26, from 9.8 per cent in FY25 and 12.0 per cent in FY24,” it said. 

 

Adding that the tariffs imposed by the United States are a moderate downside risk to the forecast, Fitch maintained that they are subject to a high degree of uncertainty. The Trump administration is planning to impose a 50 per cent headline tariff on India by 27 August. The rating agency believes the tariffs will eventually be negotiated at a lower rate. The direct impact on GDP will be modest as exports to the US account for 2 per cent of GDP, but tariff uncertainty will dampen business sentiment and investment, it noted.

Room for another 25 bp rate cut

Fitch said that low inflation provides space for one more 25 basis points cut (bp) in 2025. Falling food prices and policy actions by the Reserve Bank of India (RBI) have kept inflation contained. India’s core inflation is stable around the 4 per cent mid-point of the RBI's 2-6 per cent target band. Headline inflation fell to 1.6 per cent in July, driven primarily by easing food prices. The RBI has already cut its policy repo rate 100 bp to 5.5 per cent between February and June 2025.

 

“We estimate potential GDP growth of 6.4 per cent, led by strong public capex, a private investment pick-up and favourable demographics. We assume healthy corporate and bank balance sheets will spur an investment acceleration, but this may depend on better visibility over the domestic consumption outlook,” Fitch said. It expects the government's Goods and Services Tax (GST) reforms will support incremental growth. While India has signed several bilateral trade agreements, trade barriers remain relatively high, it said.