Moody's retains India's credit rating at 'Baa3'; outlook stable - Trump tariffs to have limited near-term impact

Moody’s, the global credit rating agency, has retained India’s rating at Baa3 for both local and foreign-currency issuer categories, as well as its local-currency senior unsecured rating. Moody’s has kept a stable outlook on India's ratings.

The stable outlook and rating confirmation indicate India's continuing credit advantages, including its substantial and rapidly expanding economy, robust external standing, and reliable domestic funding sources for ongoing budget deficits.

These advantages provide protection against unfavourable external developments, particularly as elevated United States (Aa1 stable) customs duties and other international regulations restrict India's ability to draw manufacturing investments, says Moody’s.


"India's credit strength are balanced by long-standing weaknesses on the fiscal side which will remain. Strong GDP growth and gradual fiscal consolidation will lead to an only 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 warned.

Impact of Trump's tariffs, H-1B visa fee hike

According to Moody's, the US' imposition of high tariffs (currently at 50% compared to 15–20% 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. At this stage, we expect subsequent negotiations to result in less punitive rates and domestic market-oriented foreign investment to remain robust," it says.

Talking about the recent announcement by US President Donald Trump to hike H-1B visa fee to $100,000, Moody's said, "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."

S&P upgrade for India

Recently, S&P Global elevated India's sovereign rating to BBB, marking the first upgrade in 18 years. The agency highlighted strong economic growth and fiscal improvement, stating that 50% US tariffs would have a "marginal" effect without compromising long-term growth prospects.

According to S&P, India continues to be amongst the world's top performing economies, demonstrating significant recovery from the pandemic. The GDP growth between fiscal 2022 and 2024 averages 8.8%, leading the Asia-Pacific region.

"We expect these growth dynamics to continue in the medium-term, with GDP increasing 6.8% annually over next three years. This has a moderating effect on govt debt-to-GDP ratio, despite still-wide fiscal deficits,” the rating agency said.

A BBB rating, considered investment grade, suggests "adequate capacity to meet financial commitments, but more subject to adverse economic conditions". The last S&P upgrade for India occurred in January 2007, making it the second agency after DBRS to upgrade India this year.