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Fitch keeps India at ‘BBB-‘, projects 6.5% growth in FY26
Fitch said a strengthening record of delivering growth with macro stability and improving fiscal credibility should steadily lift structural metrics, including GDP per capita, while increasing the likelihood of a modest downward trend in debt over the medium term.
Fitch Ratings has affirmed India’s Long-Term Foreign-Currency IDR rating at BBB- with stable outlook, citing strong growth and external finances but high deficits and debt as weaknesses.
GDP is forecast to grow 6.5 per cent in FY26, inflation is contained, and reserves stand at $695 billion.
Risks include US tariff uncertainty, while sustained fiscal consolidation could aid an upgrade.
It projects GDP growth at 6.5 per cent in FY26, unchanged from FY25 and well above the BBB median of 2.5 per cent, supported by strong public capex and resilient consumption. Nominal GDP growth, however, is forecast to slow to 9 per cent in FY26, from 12 per cent in FY24, Fitch said in a press release.
A proposed 50 per cent US tariff on India poses a downside risk, though Fitch expects this to be negotiated lower. While exports to the US represent just 2 per cent of GDP, prolonged tariff uncertainty could dampen sentiment and reduce India’s competitiveness in supply chain shifts away from China.
Inflation remains contained, with headline inflation falling to 1.6 per cent in July 2025 on easing food prices and core inflation steady at around 4 per cent. Following a 100 basis points cut in the repo rate to 5.5 per cent, it sees scope for one more 25bp cut in 2025. Credit growth, which slowed to 9 per cent in May from 19.8 per cent a year earlier, is expected to recover under the easing cycle.
On the fiscal side, the central government deficit narrowed to 4.8 per cent of GDP in FY25 and is forecast at 4.4 per cent in FY26, in line with the medium-term target. The broader general government deficit is projected to fall from 7.8 per cent in FY25 to 7.3 per cent in FY26 and 7 per cent by FY28, while state deficits are expected to stabilise at 2.9 per cent from FY26.
India’s debt burden remains high at 80.9 per cent of GDP in FY25, set to edge up to 81.5 per cent in FY26 before gradually declining to 78.5 per cent by FY30, though Fitch cautions this path relies on nominal growth staying above 10 per cent. The interest-to-revenue ratio, at 23.5 per cent versus the BBB median of 9 per cent, continues to constrain fiscal flexibility.
India’s external position remains a key strength, with foreign exchange reserves rising to $695 billion by mid-August 2025, equivalent to eight months of external payments. The current account deficit is projected at 0.7 per cent of GDP in FY26, rising gradually to 1.5 per cent by FY28, added the release.
Governance continues to weigh on ratings, with India ranking below the median on World Bank indicators, but Fitch’s ESG relevance scores of ‘5’ for political stability and rights and ‘5[+]’ for rule of law and institutional quality reflect both resilience and challenges.
Fitch noted that an upgrade could follow stronger fiscal consolidation and a sustained revival in private investment-led growth, while weaker growth or rising debt burdens could trigger a downgrade.
Fibre2Fashion News Desk (SG)