Fitch Ratings affirms India's credit rating at 'BBB-' on robust growth

Fitch affirms India's sovereign rating at 'BBB-' with a stable outlook, citing strong growth and external resilience, even as high debt and tariff risks remain

Fitch Ratings on Monday affirmed India’s sovereign credit rating at “BBB-” with a stable outlook, supported by the country’s robust growth and strong external finances.

 

The agency said the proposed goods and services tax (GST) reforms, if adopted, would help support consumption and offset some of the risks arising from tariff uncertainty. However, it said India’s fiscal metrics are a credit weakness, with high deficits, debt, and debt servicing costs compared with ‘BBB’ peers.

 

“Lagging structural metrics, including governance indicators and gross domestic product (GDP) per capita, also constrain the rating,” Fitch said.

 

The direct impact of US tariffs on (GDP) is expected to be modest, since exports to the US account for only 2 per cent of GDP, the agency said. However, that tariff uncertainty would dampen business sentiment and investment, it added.

   

“Passage of other significant reforms, especially on land and labour laws, seems politically difficult. Still, some state governments are likely to advance such reforms. India has signed several bilateral trade agreements, but trade barriers remain relatively high,” the rating agency said, estimating India’s medium-term growth potential at 6.4 per cent.

 

Fitch projected government debt to rise slightly to 81.5 per cent of GDP in FY26, as nominal growth slips, before declining modestly to 78.5 per cent by FY30. “If nominal growth persists below 10 per cent, debt reduction could become challenging,” it warned. 

 

Expecting credit growth to pick up on the back of monetary easing, Fitch said low inflation would provide space for one more 25-basis-point rate cut in 2025.

 

On August 14, S&P Global Ratings raised India’s long-term sovereign credit rating by one notch, to “BBB” from the lowest investment grade of “BBB-”, with a stable outlook. The rating upgrade came after a gap of 18 years, citing the country’s economic resilience, sustained fiscal consolidation and improved quality of public spending. 

 

Projecting a GDP growth for 6.5 per cent for FY26, Fitch Ratings said domestic demand in India would remain solid, underpinned by the ongoing public capex drive and steady private consumption. It, however, added that private investment is likely to remain moderate, particularly given heightened US tariff risks.

 

The ratings agency said the government’s fiscal deficit target of 4.4 per cent in FY26 would be met, despite underperformance of revenue due to slowdown in nominal GDP growth. “We think spending will be managed to reach the target,” Fitch Ratings said. It, however, expects the deficit reduction to slow after FY26, with a fall to 4.2 per cent of GDP in FY27 and 4.1 per cent in FY28.

 

Fitch also forecast nominal GDP growth at 9 per cent in FY26, compared with 9.8 per cent in FY25 and 12 per cent in FY24.