Fitch Ratings on India's Creditworthiness
Fitch Ratings retained its BBB- rating with a stable outlook for India, emphasizing both strengths and challenges in the country's financial landscape.
Key Observations
- Growth and External Finances:
India's growth is described as "robust" and its external finances as "solid". - Government Finances:
Considered a "credit weakness" with public debt expected to rise due to weaker-than-anticipated nominal GDP growth. - GST Reforms:
While intended to support growth, they are potentially "slightly revenue-negative".
Debt and Deficit Outlook
- Debt-to-GDP Ratio:
Expected to increase to 81.5% of GDP by 2025-26, from 80.9% in 2024-25, given the decline in nominal GDP growth. - Long-term Debt Reduction Target:
Projected only a modest downward trend in debt to 78.5% by FY2030, contingent on nominal GDP growth recovery to 10.5%. - Fiscal Deficit:
Annual fiscal deficit is to decrease by 40 bps to 4.4% of GDP this fiscal, but reduction pace expected to slow from 2026-27.
Economic Strengths
- Macroeconomic Stability:
India's growth record and improving fiscal credibility are "strengthening", with a GDP growth forecast of 6.5% for this year, higher than the BBB median of 2.5%. - Domestic Demand:
Expected to remain solid due to public capex and private consumption, though private investment may be moderate.
Key Risks and Challenges
- US Tariff Risks:
Duties on Indian goods pose a "moderate downside risk", though Fitch expects negotiated reductions. - Pace of Reforms:
Significant reforms, especially on land and labor laws, are politically challenging, but state-level advancements may occur. - Inflation Control:
The Reserve Bank of India's efforts in keeping inflation low are noted, with an expected average retail inflation of 3.1% in 2025-26.
