Fitch Rating has affirmed India’s credit rating at BBB- with a stable outlook, projecting a robust FY26 growth of 6.5% on the back of GST and other reforms.
Though the debt burden will be a reason for credit weakness, the credit rating agency said, adding that Trump’s tariffs will eventually be ‘negotiated lower’.
Further, Fitch added that India’s ratings are supported by its ‘robust growth and solid external finances’, with growth along with macro stability and improving fiscal credibility, set to drive a steady improvement in its structural metrics, including GDP per capita.
This can increase the likelihood that India’s debt can trend ‘modestly downward’ in the medium term.
“US tariffs are a moderate downside risk to our forecast but are subject to a high degree of uncertainty. The Trump administration is planning to impose a 50% headline tariff on India by 27 August, although we believe this will eventually be negotiated lower,” Fitch Rating added.
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 said.
It added that India’s ability to benefit from the China+1 shift would be ‘reduced’ if Trump’s tariffs on India remain above those of Asian peers. However, the proposed goods and services tax (GST) reforms, should support consumption and offset growth risks, it added.
However, the note said that India’s fiscal metrics are a ‘credit weakness’, with high deficits, debt and debt service compared with ‘BBB’ peers. The lagging structural metrics of governance indicators and GDP per capita too are a constraint on the rating.
It cited two key factors that could lead to a rating upgrade going forward, namely sustainability of high medium-term growth along with an improved private investment cycle, and a commitment to keep government debt on a steady downward trend.
Fitch further said that India’s economic outlook remains ‘strong’ compared to its peers, even though the growth momentum has moderated in the past two years.
“Domestic demand will remain solid, underpinned by the ongoing public capex drive and steady private consumption. However, private investment is likely to remain moderate, particularly given heightened US tariff risks,” the note added.