Moody’s affirms India’s long-term local rating at ‘Baa3’ with ‘stable’ outlook

Global rating Moody’s 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 on the back of robust economic growth and sound external position. It also affirmed India’s other short-term local-currency rating at P-3. It said ‘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’. It added these strengths lend resilience to adverse external trends, in particular as high US (Aa1 stable) tariffs and other international policy measures hinder India’s capacity to attract manufacturing investment.

It noted that India’s credit strength is 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. It further said India’s long-term local-currency (LC) bond ceiling remains unchanged at A2, and its long-term foreign-currency (FC) bond ceiling remains unchanged at A3. It added ‘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’.

The one-notch gap between the LC and FC ceiling 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. It further said that India’s credit profile benefits from its strong growth potential, underpinned by a large domestic market and favourable demographics that have historically supported resilient, demand-driven expansion, and helped insulate the economy from external shocks. Even as real GDP growth moderated in the fiscal year ended March 2025 (fiscal 2024-25) to 6.5 per cent from 9.2 per cent in fiscal 2023-24, India has been and will remain the fastest growing G20 economy through at least the next two to three years.

It said ‘We project economic growth to be sustained at 6.5 per cent in fiscal 2025-26 as the government’s continued emphasis on capital expenditure, lower inflation and the consequent easing of monetary policy will support robust domestic consumption and investment’. The imposition of high tariffs by the US (currently at 50 per cent compared to 15-20 per cent tariff rates applied to other APAC countries) will have limited negative effects on India’s economic growth in the near term. 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.