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25 Aug 2025: Fitch Ratings has affirmed India's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB-' with a Stable Outlook. India's economic outlook remains strong relative to peers, even as momentum has moderated in the past two years. We forecast GDP growth of 6.5% in the fiscal year ending March 2026 (FY26), unchanged from FY25, and well above the 'BBB' median of 2.5%. Domestic demand will remain solid, underpinned by the ongoing public capex drive and steady private consumption. However, private investment is likely to remain moderate, particularly given heightened US tariff risks. There has been a notable slowdown in nominal GDP growth, which we forecast to expand 9.0% in FY26, from 9.8% in FY25 and 12.0% in FY24. US tariffs are a moderate downside risk to our forecast, but are subject to a high degree of uncertainty. The Trump administration is planning to impose a 50% headline tariff on India by 27 August, although we believe this will eventually be negotiated lower. The direct impact on GDP will be modest as exports to the US account for 2% of GDP, but tariff uncertainty will dampen business sentiment and investment. Moreover, India's ability to benefit from supply chain shifts out of China would be reduced if US tariffs ultimately remain above that of Asian peers. Proposed goods and services tax (GST) reforms, if adopted, would support consumption, offsetting some of these growth risks. Falling food prices and policy actions by the Reserve Bank of India (RBI) have kept inflation contained. Core inflation is stable around the 4% mid-point of the RBI's 2%-6% target band. Headline inflation fell to 1.6% in July, driven primarily by easing food prices. The RBI cut its policy repo rate 100bp to 5.5% between February and June 2025. We think low inflation will provide space for one more 25bp cut in 2025. Credit growth slowed to 9.0% in May from 19.8% a year earlier due to high policy rates and tighter
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