Fitch holds India at ‘BBB-‘ as debt weighs on rating

Fitch Ratings kept India’s sovereign credit rating unchanged at BBB- with a stable outlook on Tuesday, 11 August, saying strong economic growth and external finances continue to be offset by high government debt, fiscal deficits and weaker structural indicators.

The rating agency affirmed India’s long-term issuer default ratings at BBB- and its short-term ratings at F3.

BBB- is Fitch’s lowest investment-grade rating.

Fitch said India’s improving record of macroeconomic stability and policy credibility should support growth even as the economy faces near-term pressure from higher energy costs stemming from the conflict in the Middle East.

“There are residual risks from uncertainty related to the US-Iran conflict,” Fitch said, citing India’s position as a large net energy importer, but added that it did not expect a lasting hit to the country’s growth prospects.

Fitch expects India’s economy to grow 6.4% in the fiscal year ending March 2027, slower than the average growth of about 7.4% over the previous three years but still more than three times the 2% median for sovereigns in the BBB category.

Over the medium term, the agency estimates India’s potential growth rate at 6.4%, supported by public capital expenditure, a recovery in private investment and favorable demographics.

Healthy corporate and bank balance sheets should support investment, while changes to the goods and services tax, implementation of labor codes, deregulation and greater trade openness could provide additional support.

India’s public finances remain the main weakness in its sovereign credit profile.

Fitch expects the combined deficit of the central and state governments to narrow to 7.3% of gross domestic product (GDP) in FY27 from 7.5% in FY26. It expects the central government to broadly meet its own fiscal deficit target of 4.3% of GDP, although higher fertilizer subsidies and reductions in fuel excise duties create some risk of slippage.

The 4.3% target was set by the government in the February Union Budget, down from an estimated 4.4% in FY26. The Centre also projected its own debt-to-GDP ratio at 55.6% for FY27.

Fitch, however, looks at debt across the general government, including the states. On that measure, debt stood at 84.4% of GDP in FY26, well above the 57% median for BBB-rated sovereigns. Fitch expects the ratio to decline only gradually to about 79% by FY31.

Debt servicing is another constraint. India’s interest payments amount to about 23.7% of government revenue, according to Fitch, compared with a BBB-category median of 8.4%.

External finances remain a counterweight to those weaknesses. Fitch expects India to maintain a relatively small current-account deficit and a net external creditor position, while foreign-exchange reserves are projected to reach about $733 billion by the end of FY27, enough to cover roughly 7.4 months of external payments.

The agency expects inflation to average about 4.1%, close to the Reserve Bank of India’s 4% target, despite the rise in energy prices. Fitch also expects the RBI to raise its policy rate by 25 basis points to 5.5% later this year if higher energy costs and El Niño generate broader inflationary pressure. One basis point is one-hundredth of a percentage point.

Tuesday’s decision leaves Fitch more cautious on India than S&P Global Ratings. S&P upgraded India to BBB from BBB- in August 2025, its first sovereign upgrade for the country in 18 years, citing economic resilience and sustained fiscal consolidation.

Fitch has kept India at BBB- since 2006.

Moody’s Ratings also remains at the equivalent lowest investment-grade level, Baa3, with a stable outlook, which it affirmed in September 2025.

Fitch said an upgrade could become more likely if India demonstrates that high medium-term growth can be sustained alongside macroeconomic stability, particularly if private investment strengthens and government debt declines more convincingly.

Conversely, a halt in fiscal consolidation, a shock that pushes government debt materially higher or a structural deterioration in growth that slows convergence in per capita income could put downward pressure on the rating.