Fitch Affirms India at 'BBB-', Outlook Stable

Global ratings agency Fitch Ratings reaffirmed India's sovereign ratings at 'BBB-', with a stable outlook.

India's ratings are underpinned by its strong medium-term growth outlook, which will continue to drive improvement in structural aspects of its credit profile, including India's share of GDP in the global economy, as well as its solid external finance position, the ratings agency said.

Strengthening fiscal credibility from recent achievement of deficit targets, enhanced transparency and buoyant revenues have increased the likelihood that government debt can follow a modest downward trend in the medium term, Fitch said.

Nevertheless, fiscal metrics remain a credit weakness, with deficits, debt and debt service burdens all high compared to 'BBB' range peers, it cautioned. Lagging structural metrics, including governance indicators and GDP per capita, also weigh on the rating, it added.

India is set to remain among the fastest-growing sovereigns globally. "We forecast GDP growth of 7.2% in FY25 and 6.5% in FY26, down slightly from 8.2% in FY24," it said.

Public infrastructure capex remains a key growth driver and has improved spending quality, helping mitigate the drag from fiscal consolidation. Private investment in real estate is likely to remain strong and there are signs of a nascent pick-up in manufacturing investment.

"We estimate India's potential GDP growth at 6.2%, underpinned by the infrastructure push, strong services sector, and solid private investment outlook," it stated.

The improved health of bank and corporate balance sheets in recent years should pave the way for a positive investment cycle. A key risk is if this private investment cycle does not materialise as a result of subdued consumption, which would weigh on job creation and dampen potential benefits from India's demographic dividend, Fitch said.

Fiscal consolidation by the central government is advancing more quickly than we expected, even as capex remains high, signaling commitment to reduce deficits, the note said. Fitch forecasts the fiscal 2025 deficit to narrow 4.9% of GDP, in line with the July budget, from a better-than-expected 5.6% in fiscal 2024. 

Sustained commitment to a fiscal strategy of deficit reduction that is consistent with keeping general government debt and interest/revenue ratio on a steady downward trend, could lead to positive rating action, along with increased confidence in the sustainability of high medium-term growth, for instance through greater evidence of a durable improvement in the private investment cycle, stated the ratings agency.