Moody's retains India rating at 'Baa3' with stable outlook due to strong GDP growth

India's strong economic growth and stable external finances have helped it maintain its credit ratings, according to global rating agency Moody's. On Monday, Moody's affirmed India's long-term local and foreign-currency issuer ratings and the local-currency senior unsecured rating at Baa3 with a 'Stable' outlook. 

Moody's also maintained India's short-term local-currency rating at P-3.  The agency’s latest review comes amid recent improvements in India's fiscal and economic outlook, following other global agencies’ positive assessments, including S&P Global Ratings’ upgrade of India's sovereign rating in August.

"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," Moody's said in a statement.

It added that these strengths provide resilience against adverse external trends, such as high US (Aa1 stable) tariffs and other international policies that could limit India's ability to attract manufacturing investment.

At the same time, the agency noted long-standing fiscal weaknesses. "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," it said.

Moody's also said that India’s long-term local-currency (LC) bond ceiling remains unchanged at A2, while its long-term foreign-currency (FC) bond ceiling stays at A3. "The four-notch gap between the LC ceiling and issuer rating reflects modest external imbalances as represented by persistent, albeit narrow, current account deficits; a relatively large government footprint in the economy; and moderate predictability and reliability of government policies," it said.

The one-notch gap between the LC and FC ceiling, the agency added, "reflects limited external indebtedness and the low likelihood of a debt moratorium, especially in the context of recent steps towards liberalisation of non-resident portfolio investment."