MUMBAI: International rating agency Moody’s said India's Budget 2026-27 doesn’t help the sovereign ratings to improve even though the country’s credit profile largely remains unchanged with higher market borrowings and debt-driven investment along with going slow on the fiscal consolidation roadmap.
All the three international ratings agencies have a very low rating for the country which has been pegged at BBB- for more than a decade, which is just notch above the junk rating. Though all of them have stable outlook on the country. Higher fiscal deficit is one of the biggest roadblocks for a higher sovereign rating.
“While the government continues to demonstrate its commitment to—and a lengthening track record of—fiscal consolidation, it has targeted a narrowing of the fiscal deficit by only 0.1 percentage points of GDP in fiscal 2027, the smallest pace of reduction since India emerged from the pandemic.
As such, the deficit remains wider than any of those incurred during the current government’s first term in office. Thus, the budget does not lead to a re-rating of the sovereign ratings,” Christian de Guzman, senior vice-president at Moody's Ratings, said in a quick commentary on the budget 2027.
In addition to the continued spending on infrastructure, the budget provides tactical support for the economy against the backdrop of prevailing external uncertainties, including the unresolved issues around US tariffs, and despite the proven resilience of economic growth over the past year, he said. But he was quick to note that, at the same time, support for the economy, which includes measures announced in recent months such as GST rate cuts, will lead to an ongoing erosion of tax revenue as a share of GDP that will worsen debt affordability as measured by interest payments relative to revenue.
“Moreover, we do not expect significant progress on debt reduction, which supplants deficit consolidation as the anchor for fiscal policy, leaving our broader assessment of the country’s fiscal strength intact,” Christian said.