Fitch Ratings on Monday retained India’s sovereign credit rating at ‘BBB-’ with a stable outlook, citing the country’s strong growth momentum and solid external finances. The decision, however, comes with caution as the rating agency flagged India’s high debt burden and looming tariff risks from the United States.
Fitch keeps India’s growth forecast at 6.5%
Fitch kept its forecast for India’s GDP growth unchanged at 6.5 per cent for FY26, the same as FY25. This pace of expansion is much higher than the ‘BBB’ median of 2.5 per cent.
“India’s economic outlook remains strong relative to peers, even as momentum has moderated in the past two years,” Fitch said according to PTI, adding that it sees medium-term growth potential at 6.4 per cent, supported by government-led capital expenditure, a pick-up in private investment and favourable demographics.
Fitch warns steep US tariffs may hit growth
The agency warned that the proposed 50 per cent tariffs by the United States on Indian goods could pose a moderate downside risk to growth. The new levy, aimed in part at India’s oil imports from Russia, is among the steepest trade actions taken by Washington under President Donald Trump.
According to Reuters Fitch said, tariffs, If implemented, could weaken India’s ability to benefit from supply chain shifts out of China and may “dampen business sentiment and investment.”
High debt and fiscal pressure weigh on rating
Despite the strong growth numbers, Fitch highlighted India’s elevated debt levels as a key weakness. It estimated government debt at 80.9 per cent of GDP in FY25, projected to rise slightly to 81.5 per cent in FY26. This is well above the ‘BBB’ median of 59.6 per cent.
“If nominal growth persists at below 10 per cent, debt reduction could become challenging,” the agency warned as per a report by Reuters. High fiscal deficits and weaker structural indicators, such as governance and GDP per capita, also constrain the rating.
GST changes could offset growth risks: Fitch
Fitch noted that India’s proposed goods and services tax (GST) reforms could help boost consumption and offset some growth risks. The Centre has suggested a two-tier rate structure of 5 per cent and 18 per cent, along with a 40 per cent slab for select goods, replacing the existing 12 per cent and 28 per cent brackets.
“The government’s deregulation agenda and GST reforms should support incremental growth,” Fitch said according to PTI, though it pointed out that politically sensitive reforms on land and labour laws remain difficult to push through at the national level. Some states, however, may advance these changes independently.
S&P, DBRS upgrade India, Fitch stays cautious
Fitch’s decision comes shortly after S&P Global Ratings upgraded India to ‘BBB’ earlier this month, marking its first upgrade for the country in over 18 years. In May, Morningstar DBRS also raised India’s rating to ‘BBB’, citing progress on structural reforms.
Fitch, however, chose to stick to its current assessment, saying a stronger record of delivering growth with macro stability and improving fiscal credibility will be key to any future upgrades.