The global uncertainty and trade war hves cast some shadow on the growth benefit of India in the short term | Photocredit: Francis Mascarenhas
Even while India is going through turbulence in the midst of the American mutual rate, the credit profile of the economy remains supported. We at CarEdge Global (CGIL) have awarded a rating of BBB+ to India, with a stable prospect. This is a notch higher compared to S&P’s recently improved rating of BBB and two notches higher than those by Moody’s and Fitch. The sovereign rating of India is supported by relatively healthy growth and comfortable external position, even in the midst of global unrest. Although the tax pillar is a weak bond with a high interest rate pay, the government debt is an estimated trend. Moreover, monetary policy has been effective with the inflation that remains in the target band of the central bank.
The global uncertainty and trade war have thrown some shadow on the growth benefit of India in the short term. While the export from India to the US is limited, by approximately 2 percent of GDP, the country is now confronted with the highest rate of the US by 50 percent.
We have trimmed India’s growth prospects for FY26 to 6-6.5 percent, depending on how quickly a kind of trade agreement can be reached with the US. Nevertheless, India remains the only major economy that is expected to register high growth of around 6.5 percent in the next five years, according to the IMF.
Capex improves
The investment-to-BBP ratio of India at 30 percent is on the higher side (20-29 percent for similar peers). The increased government focus on physical and digital infrastructure is a good omen for growth. The quality of government spending has improved, with the Capex of the center increasing as a percentage of GDP to 3.2 in FY25 from the average of 1.7 in the five-year pre-known period. However, it will be crucial for private investments to pick up meaningfully for a long -term economic growth momentum.
As the external demand scenario remains uncertain, the government is looking at measures to stimulate domestic consumption. The reduction in the tax burden on income tax and GST rationalization will probably give substance to domestic consumption. However, the government must create enough jobs to offer a push to family income and to guarantee the momentum of domestic consumption.
The external sector of India is confronted with limitations of the tariff stroke, with the impact specifically serious on labor -intensive sectors such as textiles, leather, seafood, gems and jewelry. On an annual basis, the export effect of 50 percent rate could be approximately 1 percent of GDP. However, the export of the healthy service sector of India, the low global prices for crude oil and strong transfers will continue to dampen the balance of the current account. Although capital flows would remain volatile, India has sufficient Forex reserves, at $ 690 billion.
India has been on a tax consolidation path after the Covid shock. The tax deficit from the center to GDP has decreased from 9.2 percent in FY21 to 4.8 percent in FY25 and is estimated at 4.4 percent in FY26. The estimated loss of income to the center by GST -Rationalization is likely to be weighed by higher than budgeted dividend transfer by RBI to the center this year.
Broadly speaking, the movement towards tax consolidation will probably continue. India is one of the few countries worldwide that is expected to see moderation in government debt to GDP ratio. We estimate the debts of the general government (Center + State) to GDP to fall from around 81 percent in FY25 to 74 percent level by FY35. A large part of the government debt is inland in nature and therefore not exposed to external vulnerabilities. India also has no history of the past standard.
Political stability that results in better policy implementation is another factor is the preference of the sovereign profile of the country. To bring a nutshell, India’s persistent high growth, physical and digital infrastructure, robust external sector and stable financial sector give our confidence about the government’s credit profile.
The writer is the chief economist, Careedge Ratings
Published on September 4, 2025
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