Moody’s affirms India’s Baa3 rating with ‘stable’ outlook; flags fiscal risks

Ratings agency Moody’s on September 29, reaffirmed India’s sovereign rating at Baa3 with a stable outlook, underscoring the country’s resilient growth profile, strong external buffers and large domestic financing base for fiscal gaps.

“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,” the agency said.

Moody’s noted that India’s fiscal trajectory remains its key weakness. While robust GDP growth and gradual consolidation will bring down government debt only slowly, weak debt affordability is unlikely to see a material improvement in the medium term.

Recent fiscal measures designed to spur private consumption, such as GST 2.0 reforms, could further erode government revenues, limiting progress on debt reduction.

At the same time, Moody’s highlighted India’s resilient domestic demand as a “formidable buffer” against global uncertainties, helping the economy absorb external shocks.

“The stable outlook incorporates India’s gradually improving fiscal metrics and resilient growth prospects compared with peers. However, fiscal accommodation in the context of an uncertain global macroeconomic outlook could impede progress towards debt reduction,” the statement added.

Also Read: Moody’s flags US H-1B fee risk to IT exports, says large firms better placed

US tariffs and visa fees pose external challenges

Earlier on September 22, Moody’s warned that high US tariffs and other international policy measures continue to hinder India’s ability to attract manufacturing investment. It also flagged recent changes to H-1B visa fees, which could raise operating costs for Indian IT firms and potentially dampen services exports and remittance inflows.

Sweta Patodia, AVP at Moody’s Ratings, said steady global demand for IT services would offset some of these pressures, with large players such as Tata Consultancy Services and Infosys better placed to manage the challenges thanks to strong balance sheets and increased local hiring.