Moody’s Retains India At Baa3 With Stable Outlook, Flags Fiscal Pressures Amid Strong Growth

Moody’s Ratings, on September 29, 2025, reaffirmed India’s long-term issuer ratings for both local and foreign currencies, along with the local-currency senior unsecured rating, at Baa3, maintaining a stable outlook. 

The decision reflects strong economic growth and a robust external financial position. The agency also upheld the short-term local-currency rating at P-3, as cited by PTI.

“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 stated.

As noted by PTI, these strengths help India withstand global challenges, such as high US tariffs (rated Aa1, stable) and other international policies that may limit its ability to attract manufacturing investments. However, ongoing fiscal weaknesses counterbalance these advantages.

According to the rating agency, despite robust GDP growth and gradual fiscal consolidation, the government’s high debt burden will decrease only slowly. 

Recent measures to enhance private consumption have weakened revenue, hindering improvements in debt affordability.

The long-term local-currency bond ceiling remains at A2, and the foreign-currency bond ceiling stays at A3. 

PTI cited Moody’s explanation: “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.”

The one-notch difference between the local- and foreign-currency ceilings is due to low external debt and a reduced likelihood of a debt moratorium, bolstered by recent liberalization of non-resident portfolio investment.

On August 14, 2025, S&P Global Ratings upgraded India’s sovereign rating to ‘BBB’ from ‘BBB-’ with a stable outlook, marking the first such upgrade in over 18 years.