Fitch Ratings on India's Sovereign Credit Rating
Fitch Ratings affirmed India's sovereign credit rating at "BBB-" with a stable outlook. This rating is supported by India's robust growth and strong external finances.
Key Highlights
- GST Reforms: Proposed goods and services tax reforms could support consumption and help mitigate risks from tariff uncertainties.
- Fiscal Metrics: India's high deficits, debt, and debt servicing costs are noted as credit weaknesses compared to other 'BBB' rated peers.
- Structural Metrics: Lagging governance indicators and GDP per capita also constrain India's rating.
- US Tariffs Impact: Direct impact on GDP is modest since exports to the US account for only 2% of GDP, but tariff uncertainties dampen business sentiment and investment.
- Reforms and Trade: Passage of significant reforms on land and labor laws seems politically difficult, though some state governments may advance reforms. Despite several bilateral trade agreements, trade barriers remain high.
Economic Projections
- India's medium-term growth potential is estimated at 6.4%.
- Government debt is projected to rise slightly to 81.5% of GDP in FY26, before declining to 78.5% by FY30. Persistently low nominal growth could challenge debt reduction efforts.
Comparative Perspectives
On August 14, S&P Global Ratings upgraded India's long-term sovereign credit rating from "BBB-" to "BBB", citing economic resilience and improved public spending. This was the first upgrade in 18 years.
GDP Growth and Fiscal Deficit
- Fitch projects a GDP growth of 6.5% for FY26, driven by public capex and steady private consumption, though private investment may remain moderate.
- The government's fiscal deficit target of 4.4% in FY26 is expected to be met despite revenue underperformance due to slowed nominal GDP growth.
- Deficit reduction is expected to slow post-FY26, with a projected fall to 4.2% of GDP in FY27 and 4.1% in FY28.
- Nominal GDP growth is forecasted at 9% in FY26, compared to 9.8% in FY25 and 12% in FY24.
