India's 'BBB-' rating unchanged: Fitch cites energy shocks, fiscal weakness, but praises growth

New Delhi: Fitch Ratings on Tuesday kept its sovereign credit rating on India unchanged at the lowest investment grade of "BBB-", with a "stable" outlook. It said the country's strengths-such as robust growth outlook and solid external finance fundamentals-are balanced against still-weak fiscal metrics amid energy shocks stemming from the West Asia war.

India's macroeconomic stability and improving policy credibility, the agency said, could "underpin continued robust growth and enhance economic resilience".

Fast growth could also support improvement in structural credit metrics and raise chances of a cut in government debt, it said.


Also read: India growth seen slowing to 6.6% in FY27, says Fitch Group company BMI

Sovereign ratings are important, as they can potentially impact borrowing costs for domestic entities, apart from influencing foreign investor confidence in an economy.

The positives in India's case, Fitch said, are stacked against high deficits, debt and debt service costs compared with those of peers, despite recent fiscal consolidation. "Lagging structural metrics, including governance indicators and gross domestic product per capita, also constrain India's rating," it added.

Rating records

Fitch has retained its sovereign rating on India since 2006, while Moody's has maintained it at the same lowest investment grade of 'Baa3' since 2020. But S&P, the biggest of the global ratings firms, raised its rating on India last year to 'BBB' from 'BBB-' after 18 years, citing the country's economic resilience and sustained fiscal consolidation.

inflation & rate outlook

Fitch acknowledged that its projected 6.4% GDP growth for India for FY27 is three times the 2% median growth for peers rated BBB. It forecasts a potential economic expansion of 6.4% over the medium term.

India's inflation, Fitch said, could stay within the RBI tolerance band of 2-6%. Still, the RBI may raise its key policy rate by a quarter percentage point to 5.5% this year to tackle second round effects from the energy shock and El Nino risks, it said. It expects the Centre to meet its 4.3% FY27 fiscal deficit target, despite higher fertiliser subsidies and fuel excise duty cuts.

Fiscal weakness

Fitch said the combined debt of Central and state governments remained elevated at 84.4% of GDP in FY26, against the 'BBB' median of 57%. It forecast the debt to drop slowly to around 79% by FY31. A high interest-to-revenue ratio of 23.7% (BBB median: 8.4%) constrains the rating and will only ease slowly, it said.

BJP's gain, and protests

The ratings firm flagged recent protests stemming from leaked medical entrance question papers.

Also read: Indian corporates to clock 9% aggregate revenue in FY27: Fitch

It also reckoned that the further rise of the BJP in recent state polls may support the implementation of policy priorities.