Moody's Ratings has affirmed India's long-term local and foreign-currency issuer ratings and the local-currency senior unsecured rating at Baa3, with a stable outlook. This decision reflects Moody's view that India's strengths, including its large and fast-growing economy, sound external position, and stable domestic financing base for ongoing fiscal deficits, will be sustained. The agency also affirmed India's short-term local-currency rating at P-3. Baa3 is the lowest investment grade rating on Moody's scale, signaling that India's bonds and debt instruments are still considered investment grade. A stable outlook indicates that Moody's does not expect to change the rating in the near future, either upwards or downwards.

The stable outlook incorporates India's gradually improving fiscal metrics and resilient growth prospects compared with its peers. Moody's expects India to outpace other G20 economies in growth. The government's continued emphasis on capital expenditure, lower inflation, and the consequent easing of monetary policy will support robust domestic consumption and investment, contributing to this growth. Even as real GDP growth moderated in FY25 to 6.5% from 9.2% in FY24, India has been and will remain the fastest growing G20 economy through at least the next two to three years, with Moody's forecasting GDP growth at 6.5% in FY26.

However, Moody's also pointed out that India's credit strengths are balanced by long-standing weaknesses on the fiscal side, which will remain. Strong GDP growth and gradual fiscal consolidation will lead to only a very gradual decline in the government's high debt burden and will not be sufficient to materially improve weak debt affordability, especially as recent fiscal measures to reinforce private consumption erode the government's revenue base. 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.

The rating agency believes that the US' imposition of high tariffs will have limited negative effects on India's economic growth in the near term, as strong domestic demand and a resilient services sector would help cushion the impact. Previously, Moody's had estimated that the 50% tariff on Indian goods announced by the US could lower India's GDP growth by about 0.3 percentage points, reducing it from the projected 6.3% for 2025–26. However, it may constrain potential growth over the medium to long term by hindering India's ambitions to develop a higher value-added export manufacturing sector. Moody's also does not expect changes to H-1B visas and restrictions on outsourcing to materially affect India's services exports or workers' remittances in the near term.

Moody's indicated that 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.

S&P Global Ratings recently upgraded India's sovereign rating to BBB, its first upgrade in 18 years. The agency highlighted strong economic growth and fiscal improvement. S&P highlighted that India's GDP growth, which averaged 8.8% between FY22 and FY24, leads the Asia-Pacific region and projects growth of 6.8% annually over the next three years, supporting a gradual reduction in the debt-to-GDP ratio despite wide fiscal deficits.