S&P affirms India's 'BBB' rating with stable outlook; sees 6.6% growth this fiscal

S&P Global Ratings on Thursday affirmed India's sovereign credit ratings at 'BBB' for the long term with a stable outlook, saying policy stability and high infrastructure investment will support the country's growth prospects.

The ratings agency, however, expects India's economic growth to slow to 6.6% in the current fiscal from 7.7% in fiscal 2026, citing an ongoing energy shock and challenging agricultural conditions.

It said India's growth would nevertheless remain robust over the medium term, with GDP growth expected to average 7% annually over the next three years.

"High energy prices and challenging agricultural conditions will marginally slow India's growth this year, but we expect economic fundamentals to remain sound and support robust growth over the next two to three years," S&P said.

S&P said that stable fiscal and monetary policies would help moderate the government's elevated debt and interest burden.

India's sovereign ratings are anchored by its dynamic and fast-growing economy, strong external balance sheet and stable institutions that provide policy predictability, S&P said.

“Counterbalancing these strengths are the government's weak fiscal performance and burdensome debt stock, as well as low GDP per capita,” it added.

S&P said India's fiscal position remained the weakest part of its sovereign ratings profile, although it expected the government to continue with gradual fiscal consolidation.

"While the union fiscal deficit may exceed its current budget target, we believe India remains committed to fiscal consolidation, even as it maintains its strong infrastructure drive," it said.

The agency expects the general government deficit at 7.3% of GDP in fiscal 2027, declining to 6.6% by fiscal 2030.

It also projected the net general government debt-to-GDP ratio to fall to 79.3% by fiscal 2030 from 85.4% in fiscal 2025.

S&P said the current Union Budget reinforced its expectation of gradual fiscal consolidation.

However, an excise duty reduction on fuel and a potentially higher fertiliser subsidy bill could marginally widen the fiscal deficit this year.

The central government's fiscal deficit is budgeted at 4.3% of GDP for fiscal 2027, compared with a provisional 4.4% in fiscal 2026 and 4.8% in fiscal 2025.

S&P said the government's continued focus on infrastructure spending would support investment and construction activity.

The agency said lower rainfall associated with El Nino and volatile input costs linked to the West Asia conflict would weigh on the rural economy.

While agriculture accounts for about 18% of India's economy, the agency believes that economic diversification towards services, along with infrastructure investment and manufacturing, will help cushion the impact of weaker monsoons.

S&P also said India's strong consumer demand and public investment would underpin growth over the next two to three years.

It noted that higher capital expenditure by the central government and, to some extent, state governments would spur investment and construction activity.

S&P said the 10% US tariff on Indian goods announced in July was lower than the 18% rate under an interim trade agreement in February and substantially below the 50% rate imposed in August 2025.

"Finalizing the US-India trade negotiations will reduce uncertainty and enhance investor confidence," it said.

S&P expects India's current account deficits to remain modest over the next three years and said the country's strong external position would help it withstand global challenges.

It also expects inflation to remain within the Reserve Bank of India's 2-6% target range despite near-term pressures from higher food and energy prices.

S&P said it could lower India's ratings if there was an erosion of political commitment to fiscal consolidation or if economic growth slowed materially on a structural basis, undermining fiscal sustainability.

On the other hand, it could raise the ratings if fiscal deficits narrow meaningfully, bringing the structural annual increase in general government debt below 6% of GDP.