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Informist, Monday, Aug. 25, 2025

 

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--Fitch affirms India at BBB-; outlook stable 
--Fitch: India's rtg supported by robust growth, solid external finances 
--Fitch: India fiscal metrics a credit weakness 
--Fitch: Lagging structural metrics constrain India rating 
--Fitch: See India FY26 GDP growth at 6.5% 
--Fitch: India demand to remain solid, aided by govt capex, pvt consumption 
--Fitch: India pvt invest likely to remain moderate amidst US tariff risks 
--Fitch: US tariffs pose moderate downside risk to India growth forecast 
--Fitch: Believe US' 50% tariff on India will eventually be negotiated lower 
--Fitch: Proposed GST reforms to aid India consumption, offset growth risks 
--Fitch: Expect low inflation to give RBI space for another 25 bps cut 2025 
--Fitch: See India govt fiscal deficit falling to 4.4% of GDP in FY26 
--Fitch: See India govt fiscal deficit reduction slowing post FY26 
--Fitch: See India govt fiscal deficit at 4.2% of GDP in FY27, 4.1% in FY28 
--Fitch: See India general govt fisc deficit falling to 7.3% of GDP in FY26 
--Fitch: See India general govt debt rising to 81.5% of GDP in FY26 
--Fitch: Stalling India fisc consolidation efforts can lead to rtg downgrade 
--Fitch: India sustaining high medium-term growth can lead to rtg upgrade 
--Fitch: General govt debt on downward trend can lead to India rtg upgrade
 

 

MUMBAI – Fitch Ratings Monday affirmed India's long-term foreign-currency issuer default rating at 'BBB-' with a stable outlook. Just a few days ago, on Aug. 14, S&P Global Ratings had upgraded India's long-term unsolicited sovereign credit rating to 'BBB' from 'BBB-'.

 

Fitch said India's fiscal metrics are a credit weakness, with high deficits, debt and debt service compared to its 'BBB' peers. "Lagging structural metrics, including governance indicators and GDP per capita, also constrain the rating," it said.

 

"India's ratings are supported by its robust growth and solid external finances," the rating agency said. "A strengthening record on delivering growth with macro stability and improving fiscal credibility should drive a steady improvement in its structural metrics, including GDP per capita, and increase the likelihood that debt can trend modestly downward in the medium term." 

 

Fitch has forecast India's GDP growth in 2025-26 (Apr-Mar) at 6.5%, unchanged from FY25, and same as the Reserve Bank of India's projection. It expects domestic demand to remain solid, underpinned by the ongoing public capex drive and steady private consumption. However, it sees private investment likely remaining moderate, especially given the heightened US tariff risks.

 

The rating agency sees moderate downside risk from US tariffs to its India GDP growth forecast. However, it added that the forecast is subject to high degree of uncertainty. "The (US President Donald) Trump administration is planning to impose a 50% headline tariff on India by Aug. 27, although we believe this will eventually be negotiated lower," it said. "The direct impact on GDP will be modest as exports to the US account for 2% of GDP, but tariff uncertainty will dampen business sentiment and investment."

 

Fitch, however, added that the proposed goods and services tax reforms, if adopted, would support consumption, offsetting some of these growth risks. The Centre has proposed to reduce the number of tax slabs under GST to two along with a special rate for a select few items. Currently, there are four slabs--5%, 12%, 18%, and 28%--under GST.

 

The rating agency is of the view that low inflation will provide space for the Reserve Bank of India's Monetary Policy Committee to go for one more 25 basis points cut in 2025. It also expects credit growth to pick up due to monetary policy easing. So far in 2025, the rate-setting panel has cut the repo rate by a total of 100 bps to 5.50%.

 

Fitch sees the Centre's fiscal deficit decline to 4.4% of GDP in FY26, meeting the FY22 budget objective of reaching a 4.5?ficit in FY26. It expects deficit reduction to slow after FY26, with a fall to 4.2% of GDP in FY27 and 4.1% in FY28. "Revenue may underperform as nominal GDP growth slows, but we think spending will be managed to reach the target," it said.

 

Fitch expects the general government deficit to narrow to 7.3% of GDP in FY26 and 7.0% by FY28. It estimates the aggregate state deficit to rise to 3.0% of GDP in FY25, but will stabilise at 2.9% starting FY26. The rating agency forecasts a slight rise in India's general government debt to 81.5% in FY26, as nominal growth declines. It expects debt to follow only a modest downward trend to 78.5% by FY30.

 

The Centre recently announced its intent to shift its fiscal consolidation benchmarking to metrics favoured by rating agencies, such as the debt-to-GDP ratio and monitoring interest expenses. The Budget documents for FY26 said the government aims to keep the fiscal deficit each year such that the central government debt will be on a declining path as a percentage of GDP. Its target for fiscal consolidation is that the Centre's debt is 50% of GDP, plus or minus 1%, by FY31 from 56.1% in FY26.

 

Fitch flagged that India's external finances remain a rating strength, underpinned by high foreign exchange reserves, a net external creditor position, and a low current account deficit. It forecasts current account deficit at 0.7% of GDP in FY26 before rising gradually to 1.5% of GDP by FY28. 

 

Fitch outlined both upside and downside scenarios to further rating changes. The agency said that a case for a negative rating action or downgrading India's rating could be made if it stalls its fiscal consolidation efforts or an economic shock leads to a significant rise in the government debt/GDP ratio in the medium term. A structurally weaker GDP growth outlook that weighs on India's debt trajectory or prevents a closer alignment of per capita GDP with the peer median, may also call for a similar action, it said.

 

On the other hand, India may be in line for a positive rating action or an upgrade if there is increased confidence in the sustainability of its high medium-term growth amid macro stability, for instance, through greater evidence of a durable improvement in the private investment cycle, the rating agency said. "Sustained commitment to a fiscal strategy that is consistent with keeping general government debt and the interest/revenue ratio on a steady downward trend," may also lead to the same action, according to Fitch.  End

 

Reported by Pratiksha

Edited by Ashish Shirke

 

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