Fitch Ratings on Monday affirmed India’s sovereign credit rating at BBB- with a stable outlook, citing strong growth momentum and solid external finances. However, it flagged high public debt, large fiscal deficits and weak structural indicators as key constraints relative to peer economies.
The agency projected GDP growth at 6.5 percent in FY26, unchanged from FY25, despite a slowdown from the post-pandemic rebound. Nominal GDP is expected to expand 9 percent in FY26, down from 9.8 percent in FY25 and 12.0 percent in FY24.
“Domestic demand will remain firm, supported by sustained public capital expenditure and steady private consumption,” Fitch said, adding that private investment is likely to stay moderate amid tariff uncertainty from the United States.
The Trump administration’s planned 50 percent tariff on Indian goods, set to take effect on August 27, represents a moderate downside risk, Fitch noted. While the direct impact on GDP would be modest—given that exports to the US account for just 2 percent of output—the agency warned that uncertainty could dampen business sentiment and investment. Fitch expects eventual negotiations to reduce the headline tariff rate.
On the policy front, the agency said room remains for another 25 basis point cut in interest rates this year, supported by falling food prices and contained inflation. Headline inflation eased to 1.6 percent in July, driven by food deflation, while core inflation remains anchored at around 4 percent, within the Reserve Bank of India’s 2–6 percent target band. The RBI has already cut its policy repo rate by 100 basis points in 2025 to 5.5 percent.
Fitch estimated India’s potential growth at 6.4 percent, underpinned by strong public capex, improving private investment and favourable demographics. Corporate and banking sector balance sheets are seen as healthy, offering scope for an investment revival provided domestic consumption trends remain resilient.
The agency said progress on Goods and Services Tax (GST) reforms will aid incremental growth, though India continues to maintain relatively high trade barriers despite signing several bilateral trade deals.
