India’s recent trade breakthroughs with the US and the European Union, coupled with a calibrated fiscal roadmap in the Union Budget 2026-27, are reinforcing the country’s credit fundamentals, according to CareEdge Global Ratings (BBB+/Stable).
The newly announced India-US trade pact is expected to lower US tariffs on Indian imports to 18% from a cumulative headline rate of 50%. While India’s trade dependence on the US is relatively modest, the improved tariff positioning could enhance export competitiveness and mitigate potential growth risks that were earlier pegged at 0.3–0.4% of GDP.
The EU agreement further broadens market access, with the bloc set to eliminate or reduce tariffs on 99% of Indian imports over seven years. In return, India will cut or scrap duties on 97% of EU shipments. Labour-intensive sectors such as apparel, gems and jewellery, and footwear — which have faced rising global trade barriers — stand to benefit the most.
CareEdge notes that these agreements reduce external uncertainty, strengthen export visibility and place India on a stronger competitive footing relative to other emerging markets. Over time, improved export receipts could ease pressure on the rupee, support capital flows and bolster investor confidence, even as portfolio outflows persist.Reflections from the Budget
"The Union Budget signals a steady and calibrated approach to fiscal consolidation, anchored in maintaining deficit target with continued emphasis on capital investment," the CareEdge statement said.
The Centre has reaffirmed its glide path, targeting a fiscal deficit of 4.3% of GDP by FY27, after aiming for 4.4% in FY26. The debt-to-GDP ratio is projected to moderate to 55.6% in FY27 from 56.1% in FY26, marking the first year of debt as a formal fiscal anchor.
Capital expenditure remains a priority, with the government continuing to back investments in logistics, manufacturing, skilling and supply-chain resilience. While tax revenues may see some moderation due to GST rationalisation and income-tax relief measures, higher non-tax revenues — including dividend and surplus transfers — are expected to provide support.
Persistent underachievement in disinvestment targets, elevated interest burdens and rising indebtedness at the state level could weigh on fiscal flexibility. States account for roughly one-third of general government debt, with their fiscal pressures mounting amid higher committed spending and limited revenue headroom.
Even so, in a global environment marked by mounting sovereign debt, India stands out as one of the few large economies expected to see a gradual decline in public debt over the medium term.
CareEdge concludes that resilient growth prospects, improving external visibility and a measured approach to fiscal consolidation are collectively underpinning India’s sovereign credit profile. The real test, however, will lie in sustained revenue mobilisation, credible asset sales and disciplined debt management in the years ahead.
Source Name : Economic Times