Fitch Ratings on Monday retained India's sovereign credit rating at “BBB-” with a stable outlook on robust growth and external finances. The proposed 50 per cent US tariffs on India pose a moderate downside risk to its 6.5 per cent GDP growth forecast for the current fiscal, Fitch observed. "Proposed GST reforms, if adopted, would support consumption, offsetting some of these growth risks,” it said.
The Centre has proposed to the Group of Ministers on GST rate rationalisation a two-tier rate structure of 5 and 18 per cent for “merit” and “standard” goods and services, and a 40 per cent rate for five-seven goods. The proposal entails doing away with the current 12 and 28 per cent tax slabs. “India's ratings are supported by its robust growth and solid external finances,” said Fitch.
“BBB-” is the lowest investment grade rating and comes within a fortnight of another global rating agency S&P upgrading India's credit rating by a notch to BBB. This was S&P's first upgrade for India in over 18 years. Another global rating agency, Morning DBRS, had, in May this year, upped India's rating to BBB, citing structural reforms.
Fitch's forecast of GDP growth of 6.5 per cent in the fiscal year ending March 2026 (FY26) is unchanged from FY25, and well above 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, adding that it estimates medium-term growth potential at 6.4 per cent led by strong public capex, a private investment pick-up and favourable demographics.
"The government's deregulation agenda and GST reforms should support incremental growth. Passage of other significant reforms, especially on land and labour laws, seems politically difficult. Still, some state governments are likely to advance such reforms. India has signed several bilateral trade agreements, but trade barriers remain relatively high," Fitch said.
The rating agency said a strengthening record on delivering growth with macro stability and improving fiscal credibility should drive a steady improvement in India's structural metrics, including GDP per capita, and increase the likelihood that debt can trend modestly downward in the medium term.
Fitch, however, flagged fiscal metrics as a credit weakness, given the high deficits and debt compared to BBB peers. "Lagging structural metrics, including governance indicators and GDP per capita, also constrain the rating," Fitch said.
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