Fitch Affirms India Rating Days After S&P Upgrade, Points to Tariff Risks 

It is an affirmation of the rating that is unlikely to please the government. After all, the government was hoping for an upgrade, similar to the one it received from another rating agency just a few days ago. 

Fitch Ratings has affirmed India’s long-term foreign-currency rating at ‘BBB-’ with a stable outlook, balancing the country’s robust growth prospects against persistent fiscal vulnerabilities. By contrast, S&P Global Ratings earlier this month upgraded India to ‘BBB’ from ‘BBB-’, raising hopes of similar upgrade by other agencies. 

Fitch Ratings’ commentary underscores steady economic momentum but warns that elevated debt and deficits remain a clear credit weakness, particularly when compared with ‘BBB’ peers.

India’s growth trajectory continues to stand out. Fitch projects GDP expansion at 6.5% in 2025–26, matching the previous year’s pace and far outstripping the 2.5% median among ‘BBB’ sovereigns. Domestic demand remains the backbone, supported by the government’s sustained capital expenditure drive and resilient consumption. Yet private investment is expected to remain cautious, weighed down by global trade uncertainty and the looming threat of United States tariffs. Nominal GDP growth, which had reached 12% in 2023–24, is forecast to slow to 9% in 2025–26, reflecting moderation in price trends alongside real growth stability.

The global rating agency said the tariff issue presents a key downside risk. The Trump administration’s plan to impose a 50% headline tariff on India, potentially effective from late August, could dent sentiment even if the ultimate measures are diluted through negotiation. 

While the direct GDP exposure is limited, exports to the United States account for about 2% of India’s output, the uncertainty could sap investor confidence and delay private sector commitments. It could also blunt India’s competitive edge in attracting supply chain relocations away from China, especially if its exports face a relatively higher tariff barrier than those of Asian peers. Fitch notes that proposed reforms to the goods and services tax could provide a counterweight by supporting household consumption, but policy execution will be critical.

On the fiscal front, Fitch highlights progress but stresses that vulnerabilities remain entrenched. The central government deficit fell to 4.8% of GDP in 2024–25 from a pandemic peak of 9.2% in 2020–21, thanks to buoyant revenues and subsidy restraint, even as capital expenditure steadily rose to 3.2% of GDP. For 2025–26, the deficit is projected at 4.4%, in line with the government’s medium-term consolidation target. Still, the pace of improvement is expected to slow thereafter, with deficits plateauing just above 4% by the late 2020s as spending pressures from civil service pay and possible GST tweaks take hold.

The broader fiscal picture remains strained. Fitch estimates India’s general government deficit at 7.3% of GDP in 2025–26, more than double the 3.5% median for comparable sovereigns. Debt-to-GDP ratios also stand out: at 81.5% of GDP in 2025–26, India’s burden far exceeds the 59.6% median. Although the government aims to reduce its central debt ratio to about 50% by 2030–31, Fitch sees only a modest decline to 78.5% by 2029–30. Moreover, interest payments absorb nearly a quarter of revenues, constraining fiscal flexibility and limiting room for counter-cyclical policy.

Fitch’s differing position from S&P highlights how investors view India’s strengths and risks: while S&P is optimistic about debt stabilisation alongside growth, Fitch remains more cautious about fiscal slippage and the drag of high interest costs.

India’s external metrics provide a cushion. A modest current account deficit of 0.7% of GDP in 2025–26, rising gradually thereafter, is more than covered by foreign exchange reserves of nearly $700 billion. These buffers, alongside a low share of foreign-currency debt, insulate India from external funding shocks.

Fitch’s assessment ultimately affirms the resilience of India’s growth model but underscores that sustained fiscal repair is critical to strengthen creditworthiness. The risk of US tariff escalation hangs over the near-term outlook, injecting a layer of uncertainty into an otherwise solid economic narrative.