Key Points

"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 its note.

The rating agency has said that the US' imposition of high tariffs on India 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," said the rating agency.

Additionally, the agency also doesn't expect other US policy shifts, including those related to new applications for skilled worker visas and potential levies on US businesses that outsource operations offshore, to significantly weigh on workers' remittances or India's services exports.

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.

India's credit strength are balanced by long-standing weaknesses on the fiscal side which will remain. Strong GDP growth and gradual fiscal consolidation will lead to an only 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.

Earlier, the rating agency had said that the 50 per cent tariffs levied by the Donald Trump administration on Indian goods announced could reduce India's economic growth by about 0.3 percentage points. However, it acknowledged that strong domestic demand and a resilient services sector would help cushion the impact.

- IANS