Fitch affirms India's rating at ‘BBB-’, says direct impact of Trump tariffs on GDP would be modest
“US tariffs are a moderate downside risk to our forecast, but are subject to a high degree of uncertainty," said Fitch.
- Aug 25, 2025,
- Updated Aug 25, 2025 2:14 PM IST
Fitch Ratings has affirmed India's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB-' with a stable outlook. It said India’s economic outlook remains strong as compared to its peers even as the momentum has moderated in the past two years. Fitch added that US tariffs would have a moderate downside risk to their forecast but also that its impact on the GDP would be ‘modest’.
“India's ratings are supported by its robust growth and solid external finances. A strengthening record on delivering growth with macro stability and improving fiscal credibility should drive a steady improvement in its structural metrics, including GDP per capita, and increase the likelihood that debt can trend modestly downward in the medium term. Still, fiscal metrics are a credit weakness, with high deficits, debt and debt service compared with 'BBB' peers. Lagging structural metrics, including governance indicators and GDP per capita, also constrain the rating,” it added.
While domestic demand will remain solid, private investment will remain moderate, primarily due to the heightened US tariff risks. “There has been a notable slowdown in nominal GDP growth, which we forecast to expand 9.0 per cent in FY26, from 9.8 per cent in FY25 and 12.0 per cent in FY24,” it said, with a GDP growth forecast of 6.5 per cent in the fiscal year ending March 2026.
“US tariffs are a moderate downside risk to our forecast, but are subject to a high degree of uncertainty. The direct impact on GDP will be modest as exports to the US account for 2 per cent of GDP, but tariff uncertainty will dampen business sentiment and investment. Moreover, India's ability to benefit from supply chain shifts out of China would be reduced if US tariffs ultimately remain above that of Asian peers. Proposed goods and services tax (GST) reforms, if adopted, would support consumption, offsetting some of these growth risks,” it said.
Fitch said it expects credit growth to pick up on the monetary easing, general government (GG) deficit to narrow but also to “remain a key weakness in India's credit profile for some time”. “We estimate potential GDP growth of 6.4 per cent, led by strong public capex, a private investment pick-up and favourable demographics. We assume healthy corporate and bank balance sheets will spur an investment acceleration, but this may depend on better visibility over the domestic consumption outlook,” it said.
Fitch Ratings has affirmed India's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB-' with a stable outlook. It said India’s economic outlook remains strong as compared to its peers even as the momentum has moderated in the past two years. Fitch added that US tariffs would have a moderate downside risk to their forecast but also that its impact on the GDP would be ‘modest’.
“India's ratings are supported by its robust growth and solid external finances. A strengthening record on delivering growth with macro stability and improving fiscal credibility should drive a steady improvement in its structural metrics, including GDP per capita, and increase the likelihood that debt can trend modestly downward in the medium term. Still, fiscal metrics are a credit weakness, with high deficits, debt and debt service compared with 'BBB' peers. Lagging structural metrics, including governance indicators and GDP per capita, also constrain the rating,” it added.
While domestic demand will remain solid, private investment will remain moderate, primarily due to the heightened US tariff risks. “There has been a notable slowdown in nominal GDP growth, which we forecast to expand 9.0 per cent in FY26, from 9.8 per cent in FY25 and 12.0 per cent in FY24,” it said, with a GDP growth forecast of 6.5 per cent in the fiscal year ending March 2026.
“US tariffs are a moderate downside risk to our forecast, but are subject to a high degree of uncertainty. The direct impact on GDP will be modest as exports to the US account for 2 per cent of GDP, but tariff uncertainty will dampen business sentiment and investment. Moreover, India's ability to benefit from supply chain shifts out of China would be reduced if US tariffs ultimately remain above that of Asian peers. Proposed goods and services tax (GST) reforms, if adopted, would support consumption, offsetting some of these growth risks,” it said.
Fitch said it expects credit growth to pick up on the monetary easing, general government (GG) deficit to narrow but also to “remain a key weakness in India's credit profile for some time”. “We estimate potential GDP growth of 6.4 per cent, led by strong public capex, a private investment pick-up and favourable demographics. We assume healthy corporate and bank balance sheets will spur an investment acceleration, but this may depend on better visibility over the domestic consumption outlook,” it said.