Fitch Ratings, one of the leading global credit rating agencies, has maintained India’s long-term foreign-currency issuer default rating (IDR) at ‘BBB minus’ with a stable outlook. The agency’s decision is based on India’s strong growth potential compared to its peers and resilient external finances, which have enabled the country to navigate through significant external shocks in the past year.
India’s rating is supported by its robust growth outlook, with the country expected to be one of the fastest-growing Fitch-rated sovereigns globally. Fitch forecasts a growth rate of 6 percent in fiscal year 2023-24 (FY24), supported by resilient investment prospects. The private sector’s improved corporate and bank balance sheets, along with the government’s infrastructure drive, have bolstered the confidence for stronger investment growth.
However, Fitch also highlights certain challenges that temper India’s rating. The country’s weak public finances, characterized by high deficits and debt levels compared to its peers, are a concern. Additionally, India’s structural indicators, including World Bank governance indicators and gross domestic product (GDP) per capita, lag behind, indicating the need for further reforms.
Despite the positive growth prospects, India faces headwinds from elevated inflation, high interest rates, subdued global demand, and the waning effects of pandemic-induced pent-up demand. These factors are expected to slow down the growth rate from an estimated 7 percent in FY23 before rebounding to 6.7 percent by FY25.
The rating agency acknowledges the risks associated with India’s low labor force participation rates and an uneven track record of reform implementation. While India’s large domestic market remains attractive to foreign firms, it is uncertain whether the country will be able to fully capitalize on opportunities presented by deeper integration in global manufacturing supply chains, including the diversification strategies such as China+1 corporate.
Fitch forecasts a decline in headline inflation for India, although it is expected to remain near the upper end of the Reserve Bank of India’s target band of 2-6 percent. In FY24, headline inflation is projected to average 5.8 percent, compared to 6.7 percent the previous year. The agency also notes a decline in core inflation pressure, which fell to 5.7 percent in March, marking its lowest level since July 2021.
The affirmation of India’s rating by Fitch Ratings underscores the country’s strong growth potential, driven by improving investment prospects and government-led infrastructure initiatives. However, the rating also highlights the importance of addressing weaknesses in public finances and implementing comprehensive reforms to further bolster India’s economic standing .