Moody's Retains India Rating at 'Baa3', Maintains 'Stable' Outlook

Global rating Moody's on Monday 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 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," it said in a statement.

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, it said.

India's credit strength is balanced by long-standing weaknesses on the fiscal side, which will remain, it said.

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 further said that 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.

Even as real GDP growth moderated in the fiscal year ended March 2025 (fiscal 2024-25) to 6.5 per cent from 9.2 per cent in fiscal 2023-24, India has been and will remain the fastest growing G20 economy through at least the next two to three years.

"We project 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," it said.

The imposition of high tariffs by the US (currently at 50 per cent compared to 15-20 per cent tariff rates applied to other APAC countries) 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, it said.

At this stage, the rating agency said, subsequent negotiations would result in less punitive rates and domestic market-oriented foreign investment to remain robust.

"We do not 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. Consequently, risks of a significant widening of India's current account deficits will remain limited," it said.

The rating action follows S&P Global Ratings' upgrade of India's sovereign rating on August 14 by one notch to 'BBB' from 'BBB-', with a stable outlook — its first upgrade for India in over 18 years.

Recently, Japanese credit rating agency Rating and Investment Information (R&I) upgraded India's long-term sovereign credit rating to 'BBB+' from 'BBB'.

Even Morningstar DBRS upgraded India's rating to 'BBB' from BBB (low) in May 2025.

Additionally, Moody's said upward pressure on the rating would develop if there was a material improvement in the affordability of India's high debt burden to levels more consistent with higher-rated peers.

This would likely entail fiscal measures that durably raise revenue, narrow the fiscal deficit and contribute to a more marked decline in debt, it said.

The effective implementation of structural reforms that result in a significant pickup in private sector investment, faster growth in GDP per capita and broader economic diversification, for instance, in higher value-added manufacturing or digital services, would support stronger assessments of policy effectiveness and the credit profile, it added.