Fitch Ratings has affirmed India's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB-' with a Stable Outlook. This rating indicates that India has a moderate default risk, and its capacity to meet its financial commitments is adequate, despite potential vulnerabilities from adverse economic or business conditions.

The stable outlook reflects Fitch's confidence in India's medium-term growth prospects and solid external finance position. These factors are expected to continue driving improvements in the structural aspects of India's credit profile, including its share of GDP in the global economy. Fitch projects India's GDP growth at 7.2% in fiscal year 2025 and 6.5% in fiscal year 2026, bolstered by public infrastructure investments, strong private sector investment in real estate, and a resurgence in manufacturing.

While India's growth prospects are supported by the government's infrastructure initiatives, a strong services sector, and a healthy private investment outlook, the rating agency highlighted the improved financial health of banks and corporate balance sheets as a catalyst for a positive investment cycle.

Fitch expects a "limited direct impact" on its rated Indian corporates from higher US tariffs due to generally low to moderate US export exposure. However, second-order risks from excess supply could arise in some cases. An India-US trade deal could also affect the final outcome, and companies may try to mitigate the impact from tariffs by diversifying exports. The Trump administration plans to impose a 50% tariff on Indian goods starting August 27.

Fitch expects credit metrics to improve for its rated Indian corporates in the financial year ending March 2026, as wider EBITDA margins offset their high capex intensity.

Fitch said it expects the general government deficit to fall slightly to 9.6% of GDP in full-year 2023 from 9.8% in full-year 2022. In fiscal year 2024, the Indian government successfully contained the fiscal deficit at 5.6% of GDP, below the revised estimate of 5.8%, thanks to stronger-than-expected revenue collections. The fiscal deficit target has been further trimmed to 4.9% for FY25, down from the 5.1% target set during the interim budget in February. The government aims to reduce the fiscal deficit to 4.5% or lower by FY26, adhering to its proposed fiscal glide path.

According to finance ministry's estimates, central government debt is expected to rise to ₹185.27 trillion, or 56.8% of GDP, in FY25, up from ₹93.26 trillion, or 49.3% of GDP, in 2018-19. The debt-to-GDP ratio has seen fluctuations, standing at 52.3% in 2019-20, 61.4% in 2020-21, 58.8% in 2021-22, 57.9% in 2022-23, and 58.2% in 2023-24. This increase in debt is attributed to higher spending on infrastructure and social schemes aimed at driving economic growth.