Fitch retains India’s credit rating at BBB-, sees strong economy; warns of fiscal risks due to protests
Fitch Ratings on Tuesday reaffirmed India’s sovereign credit rating at ‘BBB-‘ with a stable outlook. This extends India’s unchanged rating at the lowest investment-grade level to a 20th consecutive year.“Fitch Ratings has affirmed India’s Long-Term Issuer Default Ratings (IDRs) at BBB- with a stable outlook,” the agency said in its latest rating action.India has maintained the ‘BBB-‘ rating, the lowest investment-grade category, continuously since 2006.
Strong economic fundamentals
The ratings agency said the Indian economy continues to demonstrate resilience despite the energy shock arising from the conflict in West Asia, supported by a strong growth outlook and sound external financing fundamentals.Also Read | Beijing’s billion-barrel weapon: Why India must prepare for China-driven oil pricesFitch projected India’s GDP growth at 6.4 per cent for the current financial year, lower than the average annual growth of 7.4 per cent recorded over the previous three years.According to Fitch, the Bharatiya Janata Party’s (BJP) gains in state elections are expected to strengthen the implementation of the central government’s policy agenda.Fitch said India’s economy has remained resilient in the face of recent shocks and expects that trend to continue.Fitch said India’s sovereign rating is supported by the country’s strong growth prospects and healthy external financing position. The agency added that India’s improving track record of maintaining macroeconomic stability and strengthening policy credibility should continue to support robust economic growth and make the economy more resilient, despite near-term challenges arising from the energy shock.According to Fitch, sustained economic expansion should also lead to gradual improvements in India’s structural credit indicators and increase the likelihood of government debt declining over time.
Fiscal risk due to protests
At the same time, the agency cautioned that recent protests by young people could increase demands for higher government spending on education, job creation and skill development initiatives.While highlighting India’s strong economic fundamentals, the agency warned that recent youth protests over employment could increase pressure on the government to raise fiscal spending.“Recent protests, stemming from leaked medical exams, may point to rising concerns among youth over employment opportunities, risking fiscal spending pressures over time,” Fitch said.Last month, students organised large-scale demonstrations in the national capital over the alleged leak of the NEET medical entrance examination paper, demanding greater transparency in competitive examinations.Also Read | 100% tariffs: Why India may ignore Trump threat and continue buying Russian crude oil
Impact of crude oil dependence
India meets about 87 per cent of its crude oil requirement through imports, with nearly 46 per cent of those supplies passing through or close to the Strait of Hormuz. The vital shipping route has remained blocked following the outbreak of the US-Iran war on February 28.“There are residual risks from uncertainty related to the US-Iran conflict, given India’s position as large net energy importer position, but we do not expect a durable risk to growth prospects,” Fitch said.In the FY27 Union Budget, the government projected the debt-to-GDP ratio at 55.6 per cent, compared with an estimated 56.1 per cent in FY26. It has also set a goal of reducing the ratio to 50 per cent by March 2031.Fitch estimates India’s medium-term potential GDP growth at 6.4 per cent, driven by public capital expenditure, a recovery in private investment and favourable demographic trends.The agency said India’s external sector remains strong, supported by a low current account deficit (CAD), a net external creditor position and substantial foreign exchange reserves. It expects the CAD to widen modestly to 1.4 per cent of GDP in FY27 from 0.6 per cent in FY26, reflecting the impact of the energy shock.Fitch projects India’s foreign exchange reserves to reach $733 billion by the end of FY27, equivalent to 7.4 months of external payments. It noted that although capital outflows accelerated during the June quarter of FY27 against the backdrop of subdued foreign direct investment and portfolio inflows, the trend has since reversed following recent measures taken by the Reserve Bank of India and the government.
