Fitch retains its sovereign rating on India, days after S&P upgrade

Fitch Ratings on Monday retained its sovereign rating on India at the lowest investment grade of 'BBB-' with a stable outlook, just days after S&P upgraded its India rating for the first time in 18 years.

With this, Fitch has kept its India rating unchanged since 2006. Moody’s, too, has retained its rating on the country at the same level—Baa3—since 2020.

In the latest rating action, Fitch acknowledged India's “robust growth and solid external finances” but flagged—yet again—the country’s weak fiscal metrics, with high deficits, debt and debt services relative to 'BBB' peers.


Interestingly, the agency doesn’t quite underscore the robust growth rate of India vis-à-vis its ‘BBB’ peers, analysts have said.

Fitch conceded that the US tariffs are a “moderate downside risk to our forecast, but are subject to a high degree of uncertainty”.

The direct impact on India’s economy will be “modest as exports to the US account for 2% of gross domestic product, but “tariff uncertainty will dampen business sentiment and investment”, Fitch said.

While the Trump administration has announced a 50% extra tariff on India by 27 August, the rating agency reckons it will eventually be negotiated lower.

India's ability to benefit from supply chain shifts out of China would be reduced if US tariffs ultimately remain above that of Asian peers, the agency said.

But proposed goods and services tax (GST) reforms, if adopted, would support consumption, offsetting some of these growth risks, it added.

While upgrading its India rating, S&P this month had said the “effect of US tariffs on the Indian economy will be manageable,” given the country’s relatively less reliance on trade. About 60% of India’s economic growth stems from domestic consumption, it had noted.

Moreover, the fiscal cost of any switch from Russian crude oil imports – if fully borne by the government – will be “modest,” the agency said, citing the narrow price gap between Russian crude and current global benchmarks.

“India is prioritising fiscal consolidation,” it had said. This demonstrates “the government's political commitment to deliver sustainable public finances, while maintaining its strong infrastructure drive,” S&P had added.