Fitch affirms India’s ratings, Moody’s lifts growth forecast

Ratings agency Fitch Ratings this week affirmed India’s rating at ‘BBB-‘ with a stable outlook based on its robust medium-term growth outlook.

Strengthening fiscal credibility, enhanced transparency and buoyant revenues have increased the likelihood that government debt can follow a modest downward trend in the medium term, the ratings firm said.

Fiscal metrics, however, “remain a credit weakness, with deficits, debt and debt service burden all high compared to ‘BBB’ range peers. 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 economies Fitch said, adding: “We forecast gross domestic product (GDP) growth of 7.2% in the fiscal to March 2025 (FY25) and 6.5% in FY26, down slightly from 8.2% in FY24.”

“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,” it added.

Fiscal consolidation “is advancing more quickly than we expected, even as capex remains high, signaling commitment to reduce deficits,” Fitch noted.

“We forecast FY25 deficit to reach 4.9% of GDP, in line with the July budget, from a better-than-expected 5.6% in FY24. Improved outcomes reflect buoyant revenues, including a larger-than-budgeted Reserve Bank of India (RBI) dividend, and contained social spending, notably during an election year,” it said.

The central government will achieve its FY26 deficit target of 4.5% of GDP or below, which was set in the FY22 budget, it said, adding that on a general government basis, the deficit is forecast to fall to 7.3% of GDP in FY26 and 6.6% by FY29, based on aggregate state deficits of 2.8%.

The improved deficit outlook puts government debt/GDP on a modest downward medium-term trajectory, although debt remains high compared to peers.

The rating firm also noted India’s strong external finances.

“Foreign exchange reserves have risen by roughly $47 billion since the start of 2024 to $670 billion on 9 August (eight months of current external payments; ‘BBB’ median of 4.9 months) and we expect a further rise in the coming years. We forecast a current account deficit (CAD) of around 1% of GDP over the next three years from 0.7% in FY24. India’s comparative advantage in services will continue to boost exports and offer a buffer against commodity price shocks,” it added.

Meanwhile, Moody’s raised its real GDP growth forecasts for India to a robust 7.2% growth in 2024, up from the earlier 6.8%, and 6.6% in 2025, up from 6.4%.

The upward revision reflects strong, broad-based growth, driven by resilient private consumption and improved business conditions, it said.