Moody's affirms India's 'Baa3' rating with stable outlook

The decision reflects India’s strong credit fundamentals, including a large, fast-growing economy, sound external position, and stable domestic financing of fiscal deficits. These strengths, Moody’s noted, will help cushion the impact of external pressures such as high US tariffs and global policy shifts, Moody’s Ratings said in a press release.

India remains the fastest-growing G20 economy, with gross domestic product (GDP) growth at 6.5 per cent in FY25 and projected to sustain at the same rate in FY26, supported by capital expenditure, easing inflation, and robust domestic demand. However, Moody’s cautioned that long-standing fiscal weaknesses persist, with debt affordability remaining poor despite gradual fiscal consolidation and revenue growth.

While the government aims to reduce the fiscal deficit to 4.4 per cent of GDP in FY26, recent tax reliefs and GST reforms have narrowed the tax base, limiting gains in debt reduction. Moody’s stressed that resilience lies in India’s domestic market and demographics, though high debt levels and weak affordability constrain fiscal strength.

Environmental and social risks, including climate vulnerability, income inequality, and uneven access to healthcare and education, weigh on India’s rating. Governance, however, remains broadly aligned with peers, backed by effective macroeconomic policy.

Moody’s outlined that a rating upgrade would require durable improvements in debt affordability, stronger revenue mobilisation, or structural reforms that accelerate private investment and diversification. Conversely, a downgrade could follow weaker-than-expected growth, fiscal slippage, or renewed financial sector stress, added the release.

ALCHEMPro News Desk (SG)