Moody’s affirms India’s sovereign rating at ‘Baa3’ with stable outlook
Moody’s Ratings on Monday affirmed India’s sovereign rating at ‘Baa3’ with outlook stable. This is last investment grade rating by the agency which helps investors to take a decision and also impact borrowing from overseas.
Earlier, S&P Global, Morningstar, DBRS, and Japanese credit ratings agency R&I had upgraded India’s rating to ‘BBB’ from ‘BBB-‘.
“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 a statement. Further, these strengths lend resilience to adverse external trends, in particular, as high US tariffs and other international policy measures hinder India‘s capacity to attract manufacturing investment.
“India‘s credit strength is balanced by long-standing weaknesses on the fiscal side which will remain,” the agency said. It has projected 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.
Furthermore it said that strong GDP growth and gradual fiscal consolidation will only lead to 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.
“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,” the agency said.
Talking about measures to boost consumption, the agency noted increased income tax thresholds in this year’s Budget that have eliminated direct tax liabilities for many lower to middle-income households, as well as announced the consolidation of GST (consumption tax) rates in September 2025. “These developments have narrowed the tax base and will result in foregone revenue, thus curtailing potential improvements in debt affordability,” it said.
Relative to general government revenue, India‘s general government interest payments will remain large as compared to our universe of investment-grade sovereigns. Nevertheless, “we expect the government to remain committed to their goal of gradual debt reduction over the next decade, which implies limited risks of significant reversals to gains in fiscal consolidation since India emerged from the pandemic,” it said.
Giving rationale for stable outlook, the agency said that it incorporates India‘s gradually improving fiscal metrics and resilient growth prospects compared with peers. However, “fiscal accommodation in the context of the uncertain global macroeconomic outlook, including revenue-eroding measures, could impede progress towards debt reduction and exacerbate already weak debt affordability,” it cautioned.
Published on September 29, 2025
