Key Points

India's ratings are supported by its robust growth and solid external finances, said the rating agency in a statement.

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, it continued.

India's economic outlook remains strong relative to peers, even as momentum has moderated in the past two years.

Fitch Ratings forecast GDP growth of 6.5 per cent in the fiscal year 2025-26, unchanged from 2024-25, and well above the 'BBB' median of 2.5 per cent.

"Domestic demand will remain solid, underpinned by the ongoing public capex drive and steady private consumption. However, private investment is likely to remain moderate, particularly given heightened US tariff risks," it asserted.

There has been a notable slowdown in nominal GDP growth, which they forecast to expand 9.0 per cent in 2025-26, from 9.8 per cent in 2024-25 and 12.0 per cent in 2023-24. Nominal GDP includes headline inflation.

On US tariffs, coming into effect August 27 for India, Fitch sees a moderate downside risk, but are subject to a high degree of uncertainty.

The Trump administration is planning to impose a 50 per cent tariff on India by 27 August, although "we believe this will eventually be negotiated lower", Fitch said.

"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 affirmed.

Falling food prices and policy actions by the Reserve Bank of India (RBI) have kept inflation contained in India.

Core inflation is stable around the 4 per cent mid-point of the RBI's 2-6 per cent target band.

Headline inflation fell to 1.6 per cent in July, driven primarily by easing food prices.

The RBI cut its policy repo rate 100bp to 5.5 per cent between February and June 2025.

"We think low inflation will provide space for one more 25 basis points cut in 2025. Credit growth slowed to 9.0 per cent in May from 19.8 per cent a year earlier due to high policy rates and tighter macroprudential measures on unsecured consumer credit. However, we expect credit growth to pick up on the monetary easing," Fitch said.

- ANI