Moody’s Ratings affirmed India’s sovereign credit rating at Baa3 with a stable outlook. The agency cited improved fiscal indicators post-pandemic and relatively robust economic growth compared to peers. Investments in infrastructure, digitalization, and financial reforms have bolstered the country’s recovery.
Moody’s cautioned about potential growth slowdown and higher inflation due to escalating geopolitical tensions. It anticipates India’s GDP growth to ease to around 6% in FY27 from the estimated 7.3% in FY26, influenced by external factors. Concerns were raised regarding inflation, projected to increase to 4.8% in FY27 from about 2.4% currently.
The agency highlighted supply disruptions, particularly in LPG and fertilizers, which could elevate fuel and transport costs, impacting food prices. India’s external position might face challenges, especially with the Middle East accounting for a significant portion of inward remittances. Disruptions in that region could affect remittance flows and domestic demand in India.
Moreover, higher import expenses for energy and fertilizers, coupled with potential export disruptions, could widen the current account deficit. Moody’s noted India’s high debt levels, expecting government debt to remain above 80% of GDP in the medium term. Fiscal consolidation is projected to be gradual, with a deficit target of 4.3% of GDP in FY27, slightly lower than the previous year.
While India’s economic outlook is stable, Moody’s suggested that sustained improvements in debt levels and fiscal strength could lead to a rating upgrade in the future. Conversely, weaker growth or fiscal slippage may exert downward pressure on the rating. Looking ahead, a modest recovery to about 6.2% growth in FY28 is expected, indicating cautious progress amid global uncertainties.
