On August 25, Fitch Ratings decided to keep India’s sovereign credit rating at ‘BBB-‘, highlighting persistent fiscal deficits and elevated public debt levels. This decision dashes the government’s expectation of achieving a rating upgrade from all three major agencies, despite S&P Global recently raising India’s outlook to ‘BBB’—its first improvement in 18 years. Fitch has held India at the lowest investment-grade level since 2006, while Moody’s continues to assign a ‘Baa3’ rating, which it has maintained since June 2020.
The agency noted that India’s government debt stands at an estimated 80.9%, significantly above the 59.6% median for countries rated ‘BBB’. It projects a marginal increase to 81.5% by fiscal year 2026. Fitch warned that if nominal economic growth remains under 10%, reducing the debt burden could prove difficult.
India’s real GDP growth is forecast at 6.5% for both fiscal years 2025 and 2026. However, potential U.S. tariffs pose a moderate risk to this outlook. The United States plans to impose a 50% duty on certain Indian exports, primarily in response to India’s energy purchases from Russia. If these measures are not revised through negotiations, they could hinder India’s competitiveness in global supply chain realignments away from China and weaken investor confidence.
Nonetheless, domestic demand is expected to remain resilient, supported by strong government capital expenditure and consistent private consumption. Fitch also pointed to proposed reforms in the goods and services tax (GST) system, which, if implemented, could stimulate consumer spending and help mitigate some of the economic headwinds.
— news from Reuters
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Fitch keeps India rating, flags high debt, US tariff risks
Aug 25 (Reuters) – Credit-rating firm Fitch maintained India ‘s sovereign rating at ‘BBB- ‘ on Monday, citing levels of fiscal deficits and debt that are still high, crushing the government ‘s hopes for a lift in ratings by all three major providers. n nThis month, S&P upgraded India to ‘BBB ‘, its first such upgrade in 18 years, prompting the government to respond that it expected other rating houses to follow suit. n nSign up here. n nFitch has rated India at ‘BBB- ‘ since 2006, while Moody ‘s has retained its ‘Baa3 ‘ rating since June 2020. n nIndia ‘s government debt burden is “elevated” at its estimate of 80.9%, “well above the 59.6% ‘BBB ‘ median”, Fitch said, and forecast a slight rise in debt to 81.5% in fiscal 2026. n n”If nominal growth persists at below 10%, debt reduction could become challenging,” it added. n nThe agency expects India ‘s economy to grow at 6.5% in real terms in financial year 2026, unchanged from fiscal year 2025. U.S. tariffs pose “a moderate downside risk” to this forecast, it said. n nThe ratings action comes two days before the United States is set to impose a hefty tariff of 50% on exports of Indian goods. The levy, aimed largely at New Delhi ‘s oil purchases from Russia, is among the highest rates President Donald Trump has set on any of Washington ‘s trade partners. n nIf not negotiated lower, the tariffs on India, higher than on its Asian peers, will reduce “its ability to benefit from supply chain shifts out of China” and “dampen business sentiment and investment”, Fitch said. n nDomestic demand will remain solid, helped by the government ‘s capital spending drive and steady private consumption, it added. n nPrime Minister Narendra Modi promised sweeping consumption tax reforms this month to boost the economy as India and the United States remained deadlocked over a trade deal. n nThose “proposed goods and services tax (GST) reforms, if adopted, would support consumption, offsetting some of these growth risks,” Fitch said. n nReporting by Hritam Mukherjee and Mrinmay Dey in Bengaluru; Editing by Muralikumar Anantharaman and Clarence Fernandez