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Fitch Affirms India‘s ‘BBB-‘ Rating, Cites Robust Growth Despite Global Headwinds
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Published: August 25, 2024
New Delhi – Credit rating agency Fitch Ratings has affirmed India’s long-term foreign-currency issuer default rating at ‘BBB-‘, signaling continued confidence in the nation’s economic trajectory. The decision, announced Monday, underscores India’s strong economic growth and resilient external finances, even as global economic conditions present challenges.
“India’s economic outlook remains strong relative to peers, even as momentum has moderated in the past two years,” Fitch stated in its official report.
Fitch projects India’s Gross Domestic Product (GDP) to grow by 6.5% for the fiscal year ending March 2026 (FY26),maintaining its forecast from FY25. This anticipated growth rate significantly surpasses the ‘BBB’ median of 2.5%,highlighting India’s outperformance compared to similarly rated nations.
Following S&P’s Upgrade
Fitch’s assessment arrives shortly after S&P Global Ratings upgraded India’s sovereign credit rating, the first such move in 18 years. The S&P upgrade, also driven by strong economic growth, has prompted expectations that other rating agencies will follow suit. Economic Affairs Secretary Anuradha Thakur recently expressed her anticipation that other agencies would recognize the factors underpinning S&P’s decision.
Drivers and Risks to Growth
Fitch anticipates that domestic demand will remain “solid,” fueled by the government’s ongoing capital expenditure and consistent private consumption. However, the agency cautioned that private investment may remain moderate, largely due to potential risks stemming from US tariffs.
Specifically, the threat of increased US tariffs on Indian goods poses a moderate downside risk to India’s economic forecast. Former US President Donald Trump has proposed doubling tariffs on Indian imports to 50%, a level comparable to the highest rates imposed on Washington’s trade partners, targeting India’s oil purchases from Russia. These tariffs are scheduled to take effect on August 27th.
“US tariffs are a moderate downside risk to our forecast,” Fitch explained, adding that higher tariffs could limit India’s ability to capitalize on supply chain diversification away from china if tariff levels are not reduced through negotiation.
GST Reforms as a Potential Offset
Fitch also noted that proposed reforms to the Goods and services Tax (GST), if implemented, could bolster consumption and partially mitigate some of the growth risks. These potential tax restructuring measures were recently outlined by Indian Prime Minister Narendra Modi.
Key Trends & Insights
- Continued Positive Outlook: Despite global economic uncertainties, India maintains a strong economic outlook relative to its peers.
- GDP Growth Momentum: Projected GDP growth of 6.5% for FY26 significantly exceeds the ‘BBB’ median,indicating robust economic performance.
- US Tariffs as a Risk: Proposed US tariffs represent a key downside risk, potentially hindering India’s ability to benefit from supply chain shifts.
- GST Reforms Potential: GST reforms could provide a boost to consumption and offset some of the negative impacts of tariffs.
