Fitch retains India rating with stable outlook on strong growth, fiscal credibility

Global rating agency Fitch on Thursday affirmed India's 'BBB-' rating with a stable outlook on strong growth outlook and fiscal credibility.

Fitch said India is set to remain among the fastest-growing sovereigns globally with GDP growth of 7.2 per cent in the current fiscal year and 6.5 per cent in FY26, down from 8.2 per cent in FY24.

"Fitch Ratings has affirmed India's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB-' with a Stable Outlook," the global rating agency said in a statement.

Fitch has kept India's sovereign rating unchanged at 'BBB-', the lowest investment grade, since August 2006.

Earlier in May, US-based S&P Global Ratings upped India's rating outlook to positive from stable, while affirming the 'BBB-' rating on improved quality of government expenditure and robust GDP growth.

Fitch in its rating commentary on Thursday said strengthening fiscal credibility from the recent achievement of deficit targets, enhanced transparency and buoyant revenues, have increased the likelihood that government debt can follow a modest downward trend in the medium term.

"India's ratings are underpinned by its strong medium-term growth outlook, which will continue to drive improvement in structural aspects of its credit profile, including India's share of GDP in the global economy, as well as its solid external finance position," the rating agency said.

Fitch, however, flagged debt and debt service burden of India, compared to other 'BBB'-rated peers.

"Lagging structural metrics, including governance indicators and GDP per capita, also weigh on the rating," it said.

Fitch said 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 said.

Fitch estimates India's potential GDP growth at 6.2 per cent, underpinned by the infrastructure push, strong services sector, and solid private investment outlook.

The improved health of bank and corporate balance sheets in recent years should pave the way for a positive investment cycle.

"A key risk is if this private investment cycle does not materialise as a result of subdued consumption, which would weigh on job creation and dampen potential benefits from India's demographic dividend," Fitch added.

Fitch believes the central government fiscal deficit in FY26 will be 4.4 per cent of GDP, lower than the target of 4.5 per cent.

On a general government basis, the deficit is forecast to fall to 7.3 per cent of GDP in FY26 and 6.6 per cent by FY29.

"Policy continuity around the infrastructure drive, digitalisation and ease of doing business measures supports growth, but coalition politics and a weakened mandate will likely constrain the government's ability to enact major economic reforms, limiting upside to potential growth.

"Still, state governments are likely to steadily advance reforms around land and labour," Fitch said.