Press "Enter" to skip to content

Fitch Affirms India at ‘BBB-‘ with Stable Outlook

India’s Sovereign Rating: ‘BBB-‘

Fitch Ratings has affirmed India’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB-’ with a Stable Outlook. This means that India is still rated as an investment-grade economy, supported by strong growth and stable external finances.

Main Reasons for the Rating

  • Strong growth: India’s economy continues to grow faster than many peers, supported by government-led capital spending and steady consumer demand.
  • Solid external position: High foreign exchange reserves and a low current account deficit make India less dependent on foreign borrowing.
  • Fiscal challenges: Despite improvements, government debt and deficits remain higher than BBB-rated peers.
  • Structural constraints: Lower per-capita GDP and weaker governance indicators compared to other investment-grade countries weigh on the rating.

India’s Growth Outlook

Fitch expects India’s GDP to grow by 6.5% in FY26 (same as FY25), which is much higher than the average growth of BBB-rated countries (around 2.5%).

Key drivers of growth:

  • Ongoing government capital expenditure on infrastructure.
  • Stable private consumption.
  • Supportive demographics and improving corporate balance sheets.

However, private investment remains moderate due to uncertainty around U.S. tariffs on India. The Trump administration’s proposed 50% tariff could hurt confidence, though actual impact may be smaller since exports to the U.S. equal just 2% of India’s GDP.

Inflation and RBI Policy

Inflation is under control. Headline inflation dropped to 1.6% in July 2025 as food prices fell. Core inflation stayed steady at around 4%, which is within the Reserve Bank of India’s target range (2%-6%).

The RBI cut policy rates by 100 basis points between February–June 2025, bringing the repo rate to 5.5%. Fitch expects one more small cut later in 2025. Credit growth has slowed but should pick up with easier monetary conditions.

Government Finances

India’s government has improved fiscal transparency and is sticking to a roadmap of gradual deficit reduction:

  • Central Government deficit fell to 4.8% of GDP in FY25 from 5.5% in FY24.
  • Capex has doubled from 1.5% of GDP in FY19 to over 3% now, boosting infrastructure growth.
  • Deficit target for FY26 is 4.4% of GDP, in line with budget goals.

However, India’s general government debt is high at around 80-81% of GDP, above the BBB median of 59%. The government plans to reduce debt to 50% by FY31, but progress may be slow.

External Strengths

India’s external finances continue to be a strong point:

  • Current Account Deficit (CAD) is small at 0.7% of GDP in FY26, rising slowly to only 1.5% by FY28.
  • Foreign exchange reserves rose to USD 695 billion (Aug 2025), enough to cover 8 months of imports.
  • India is a net external creditor with limited foreign-currency debt (only 3% of total debt).

Governance and ESG Factors

Fitch also includes governance in its assessment. India scores moderately in the World Bank Governance Indicators, with a rank of 47.6. Political stability, institutional quality, and rule of law are broadly stable, but governance and corruption indicators remain below some peers.

Risks to the Rating

What could cause a downgrade?

  • Failure to reduce government deficits and debt.
  • A structural slowdown in long-term GDP growth.

What could lead to an upgrade?

  • Stronger and sustainable private investment-driven growth.
  • Steady fall in general government debt and interest burden over time.

S&P Recently Upgrades India’s Credit Rating After 18 Years

S&P Global has recently upgraded India’s sovereign credit rating to BBB from BBB- for the first time in 18 years, highlighting strong economic growth, credible monetary policy, and fiscal consolidation. The outlook remains stable, with GDP expected to grow at 6.8% annually. The upgrade has boosted Indian corporate dollar bonds, narrowing spreads by 10–14 basis points. Major issuers like SBI, Exim Bank, and Reliance now enjoy cheaper funding, while state-linked entities and banks also benefit from India’s improving fiscal and macroeconomic position.

Conclusion

Fitch’s decision to keep India’s rating at ‘BBB- with Stable Outlook’ reflects confidence in the country’s growth, strong external finances, and improving fiscal discipline. At the same time, high debt, fiscal pressures, and tariff uncertainties remain key challenges for the Indian economy going forward.

Be First to Comment

    Leave a Reply

    Your email address will not be published. Required fields are marked *