Roving Periscope: Despite Trump’s “dead economy” slur, India’s global rating goes higher
Virendra Pandit
New Delhi: Only two months ago, the mercurial US President Donald Trump had denounced Indian economy as “dead.” Ironically, he is still negotiating with India on trade and tariffs issues. But global rating agencies are not waiting for his ‘commandments,’ and praising the South Asian nation’s fast-growing economy.
On August 14, S&P Global Ratings, for example, upgraded India’s sovereign rating by a notch from ‘BBB-’ to ‘BBB,’ with a stable outlook in its first upgrade for India in over 18 years.
Morningstar, DBRS, and Japanese credit ratings agency R&I had also upgraded India’s rating.
Now, Moody’s Ratings has affirmed India’s long-term local and foreign-currency issuer ratings and the local-currency senior unsecured rating at Baa3 with a ‘Stable’ outlook on the back of robust economic growth and sound external position, the media reported on Monday.
It has projected economic growth to be sustained at 6.5 percent 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.
The global rating agency also affirmed India’s other short-term local-currency rating at P-3.
“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.
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, it said.
India’s credit strength is balanced by long-standing weaknesses on the fiscal side, which will remain.
Strong GDP growth and gradual fiscal consolidation will lead to only 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, it said.
India’s long-term local-currency (LC) bond ceiling remains unchanged at A2 and its long-term foreign-currency (FC) bond ceiling remains unchanged at A3, it said.
“The four-notch gap between the LC ceiling and issuer rating reflects modest external imbalances as represented by persistent, albeit narrow, current account deficits; a relatively large government footprint in the economy; and moderate predictability and reliability of government policies,” it said.
The one-notch gap between the LC and FC ceiling reflects limited external indebtedness and the low likelihood of a debt moratorium, especially in the context of recent steps towards liberalisation of non-resident portfolio investment, it said.
Moody’s Ratings affirmation of India’s sovereign rating at ‘Baa3,’ with outlook stable, is the last investment grade rating by the agency which helps investors to take a decision and also impact borrowing from overseas.
“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.
About measures to boost consumption, Moody’s 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 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.
