Fitch Ratings affirms India's sovereign rating at 'BBB-' with a Stable Outlook

American credit rating agency Fitch Ratings, on August 29, affirmed India's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB-' with a Stable Outlook. The outlook comes at the back of India's strong medium-term growth, the rating agency said, adding that the growth momentum will continue to drive "improvement in structural aspects of its credit profile, including India's share of GDP in the global economy."

In its commentary, it said that the strong medium-term growth will strengthen the external finance position of the country.

It also noted that the actions taken by the government to strengthen fiscal credibility through deficit targets, enhanced transparency, and buoyant revenue will reduce the government debt in the medium term.

"Nevertheless, fiscal metrics 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," the Fitch Ratings added in its commentary.

Noting the GDP growth performance of the peer countries, it added that India is set to remain among the fastest-growing sovereigns globally.

In its forecast, it anticipated that GDP growth of the country will remain at 7.2 per cent fiscal year ending March 2025 (FY25) and 6.5 per cent in FY26, down slightly from 8.2 per cent in FY24.

The report added that the capital expenditure on public infrastructure 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.

"We estimate 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 the bank and corporate balance sheets in recent years should pave the way for a positive investment cycle," the rating agency said.

Going further, it noted that the fiscal consolidation by the central government is advancing more quickly than expected, recognizing the high capex signaling commitment to reduce deficits
"We forecast the FY25 deficit to reach 4.9 per cent of GDP, in line with the July budget, from a better-than-expected 5.6 per cent 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 added.