Despite the imposition of tariffs, India Inc. has largely maintained its credit score, demonstrating resilience due to robust domestic consumption, strong balance sheets, and steady government-led spending. However, sectors heavily reliant on exports, particularly to the United States, such as marine, gems and jewelry, and textiles, could face challenges.

Overall Credit Health

Credit rating agencies' actions in the first half of FY26 (Financial Year 2025-26) underscore the strength of corporate balance sheets and a supportive domestic business environment. ICRA upgraded the ratings of 214 firms while downgrading 75, resulting in a credit ratio of 2.9, an improvement from the ratio of 2.0 in FY25. CareEdge reported a credit ratio improvement to 2.56 times in H1FY26 from 2.35 times a year earlier. Crisil Ratings, however, saw its credit ratio ease to 2.17 times in the first half of FY26, down from 2.75 times a year ago. India Ratings' downgrade-to-upgrade ratio remained range-bound at 0.31. Reaffirmations remained largely stable at about 80% over the past three years, indicating that most ratings continued to hold strong despite external changes.

Impact of US Tariffs

The United States has imposed a steep 50% tariff on several Indian goods. This poses a significant challenge for exporters, especially in sectors like cut and polished diamonds, textiles, and seafood, which are heavily reliant on the US market. Merchandise exports could contract by an estimated 4-5% year-on-year in FY26, potentially widening the current account deficit (CAD) to around 1.2% of GDP. The Indian Rupee's drop to a record low of 88.8 against the US dollar in September 2025 further highlights the external pressure.

K. Ravichandran, Executive Vice President & Chief Rating Officer at ICRA, noted that the domestic-focused nature of the Indian economy is expected to limit the broader macro impact. ICRA has revised its GDP growth forecast for FY26 upward by 50 basis points to 6.5%, helping to cushion the adverse effects of the tariffs.

Sachin Gupta, chief ratings officer at CareEdge, said the firm is awaiting clarity on the impact of the US tariffs. CareEdge is hoping for some relief in the form of a free trade agreement with the US or government support to tariff-impacted sectors. So far, CareEdge has taken rating action in only 20 cases, mostly outlook changes, which is a small number compared to the 5,000 companies they rate. Though debt for the sectors impacted by tariffs is not high, the impact on employment and margins will be significant.

Domestic Factors and Resilience

Domestic private consumption, which accounts for approximately 57% of GDP, is poised for a boost. Recent GST rate rationalization, income tax relief, easing food inflation, and the transmission of interest rate cuts are expected to stimulate household spending and aid the uneven recovery of urban demand. Bank credit is projected to grow by 10.4%–11.3% year-on-year, while NBFC credit is expected to expand by 15%–17%.

Rating upgrades in H1 FY26 were largely driven by improvements in business fundamentals, stronger parent credit profiles, reduced project risks, market share expansion, and favorable shifts in product mix and cost structures.

Potential Risks

Potential protectionist measures, such as the proposed HIRE Act affecting services exports, could disrupt India's outsourcing industry due to its reliance on the US market. Merchandise exports to the US, which account for nearly 20% of total exports, could contract 4–5% YoY in FY26 if the higher tariffs persist.

Ratings Agency Perspectives

• ICRA: India's domestic-focused economy helps cushion the impact of higher US tariffs.
• CRISIL: Has seen some degree of moderation primarily on account of export-oriented sectors, which faced headwinds.
• CareEdge: Awaiting clarity on the impact of US measures and still thinks there could be some relief in the form of a free trade agreement with the US or government support to tariff-impacted sectors.
• India Ratings: Downgrade-to-upgrade ratio remained range-bound.