Fitch keeps India ratings unchanged; flags debt, US tariff risks

New Delhi: Credit rating firm Fitch on Monday kept India’s sovereign rating unchanged at its lowest investment grade ‘BBB-‘ with a stable outlook citing robust growth and solid external finances.

However, in its report released days after S&P Global upgraded its India sovereign rating for the first time in 18 years, Fitch flagged high debt and risks to the Indian economy from the US tariffs.  

Fitch has kept its India rating unchanged at 'BBB-' since 2006. It is one of the three leading global rating agencies. Moody's has retained its 'Baa3' rating on India since June 2020.

The government has been pitching for ratings upgrade citing strong macro-economic fundamentals. After the upgrade by S&P Global hopes were high about the upgrade by Fitch also.

“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 said.

Still, fiscal metrics are a credit weakness, with high deficits, debt and debt service compared with 'BBB' peers. Lagging structural metrics, including governance indicators and GDP per capita, also constrain the rating, it added.

The rating agency underlined that India's economic outlook remains strong relative to peers, even as momentum has moderated in the past two years.

“We forecast GDP growth of 6.5% in the fiscal year ending March 2026 (FY26), unchanged from FY25, and well above the 'BBB' median of 2.5%,” Fitch noted, making a comparison between GDP growth of India with higher rated economies.

While India’s domestic demand is likely to remain solid, underpinned by the ongoing public capex drive and steady private consumption, Fitch flagged concern over the sluggish private investments.

There has been a notable slowdown in nominal GDP growth, which we forecast to expand 9% in FY26, from 9.8% in FY25 and 12% in FY24, it said.

On US tariff, Fitch said though the direct impact on GDP will be modest as exports to the US account for 2% of GDP, the uncertainty will dampen business sentiment and investment.

Moreover, India's ability to benefit from supply chain shifts out of China would be reduced if US tariffs ultimately remain above that of Asian peers. Proposed goods and services tax (GST) reforms, if adopted, would support consumption, offsetting some of these growth risks, the rating agency said.

The rating agency also highlighted structural fiscal weaknesses. “We forecast a slight rise in debt to 81.5% in FY26, as nominal growth slips. We expect debt to follow only a modest downward trend to 78.5% by FY30, even as nominal growth recovers to 10.5%. If nominal growth persists at below 10%, debt reduction could become challenging,” it said.