Moody's affirms India's 'Baa3' rating, maintains 'Stable' outlook

Moody's affirms India's 'Baa3' rating, maintains 'Stable' outlook

Ratings agency Moody's on September 29 affirmed India's 'Baa3' rating and maintained 'Stable' outlook.

Moody's said India's rating shows current credit strength, sound external position. India's rating shows sustained domestic financing for ongoing fiscal gaps, Moody's added.

US tariffs hinder India's capacity to attract manufacturing investment, it said.

"The rating affirmation and stable outlook reflect our view that India's prevailing credit strengths, including its large, fast-growing economy, sound external position and stable domestic financing base for ongoing fiscal deficits will be sustained. These strengths lend resilience to adverse external trends, in particular as high US (Aa1 stable) tariffs and other international policy measures hinder India's capacity to attract manufacturing investment. India's credit strength are balanced by long-standing weaknesses on the fiscal side which will remain," said Moody's.

India's GDP growth is not enough to improve weak debt affordability, the ratings agency further said.

India credit strength balanced by fiscal weakness, which will remain, said Moody's.

Fiscal measures to boost private consumption erode India's government revenues, said Moody's about the GST 2.0 reforms.

India's domestic demand is a formidable buffer to external uncertainties, said Moody's.

Moody's said it sees India's GDP growth at 6.5% in FY26 on continued govt capex, low CPI and on easing monetary policy.

"The stable outlook incorporates India's gradually improving fiscal metrics and resilient growth prospects compared with peers. However, fiscal accommodation in the context of the uncertain global macroeconomic outlook, including revenue-eroding measures, could impede progress towards debt reduction and exacerbate already weak debt affordability," said Moody's.

The ratings agency said it sees US tariffs to have limited near-term negative effect on India GDP but added that US tariffs will cap India's potential growth over medium-to-long term.

"We do not expect other US policy shifts, including those related to new applications for skilled worker visas and potential levies on US businesses that outsource operations offshore, to significantly weigh on workers' remittances or India's services exports. Consequently, risks of a significant widening of India's current account deficits will remain limited," said Moody's.

Moody's said it sees India-US negotiations resulting in less punitive tariff rates and that it expects domestic market-oriented foreign investment to remain robust.

Moody's added it sees India is committed to goal of gradual debt reduction over 10 years.

"Upward pressure on the rating would develop if there was a material improvement in the affordability of India's high debt burden to levels more consistent with higher-rated peers. This would likely entail fiscal measures that durably raise revenue, narrow the fiscal deficit and contribute to a more marked decline in debt," said Moody's.

"Downward pressure on the rating would stem from durably weaker growth than currently projected or a reversal in recent gains from fiscal consolidation that would contribute to materially higher debt and a significant worsening in debt affordability. In addition, a resurgence of financial sector stress that is unlikely to be addressed promptly and effectively would also put downward pressure on the rating," added Moody's.