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Informist, Friday, Nov. 14, 2025

 

--Moody's: India debt to remain flat in coming yrs on high nominal GDP growth

 

NEW DELHI – India's debt will remain flat in the coming years because of high nominal GDP growth, Moody's Ratings said Friday. This comes as a positive as Moody's, along with other rating agencies, have repeatedly flagged India's high debt burden and weak fiscal metrics as a key hindrance to a rating upgrade. Lower nominal GDP print in Apr-Jun also raised some concerns about fiscal slippage during the year.

 

In the first quarter of 2025-26 (Apr-Mar), while the real GDP growth was at a five-quarter high of 7.8%, nominal GDP was 8.8%. The Union Budget for FY26 has assumed the nominal GDP growth for the current fiscal at 10.1%. Economists have said that continued weakening nominal GDP growth may complicate the fiscal arithmetic. The nominal GDP assumed in the Budget is crucial as it determines key Budget targets, including fiscal deficit and tax collections. The government has projected the fiscal deficit for FY26 at 4.4% of GDP.

 

Moody's view on India's debt is also in contrast to what it views are for most sovereigns, which could face pressure from uncertainty about US policy shifts and widespread domestic and geopolitical tensions hampering global fiscal recovery despite broadly stable growth and contained inflation. "High debt levels increase affordability pressures while rigid budgets constrain policy effectiveness," the rating agency said in its 2026 Global Sovereigns Outlook released Friday. "New developments like AI create both opportunities and risks performance."

 

Moody's Ratings had on Sept. 29 affirmed India's long-term local and foreign-currency issuer ratings and the local-currency senior unsecured rating at 'Baa3'. The agency had also maintained its stable outlook for the economy. Even at that time, the rating agency had said India's strong GDP growth and gradual fiscal consolidation will lead to only a very gradual decline in government's high debt burden, and will not be sufficient to materially improve weak debt affordability, especially as the recent fiscal measures to boost private consumption erode the government's revenues.

 

The Centre has 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. End

 

Reported by Priyasmita Dutta

Edited by Ashish Shirke

 

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