Japan Credit Rating Agency upgrades India's sovereign rating to A- with Stable outlook

The Japan Credit Rating Agency (JCR) has upgraded India’s sovereign credit rating by one notch to A- from BBB+, citing the country’s sustained high economic growth, stronger financial system and policies aimed at improving productivity and economic development. JCR has assigned a Stable outlook to both India’s foreign currency and local currency long-term issuer ratings.

The rating agency said India’s economy has maintained growth of around 7%, supported by robust private consumption and public investment. It also pointed to policy measures including the development of digital public infrastructure and implementation of the goods and services tax (GST), saying these have strengthened India’s economic foundations.

“Considering India’s solid economic growth, the effectiveness of economic policies that strengthen the foundations for growth, and the improved soundness of the financial system, JCR has upgraded the Republic of India’s Foreign Currency and Local Currency Long-term Issuer Ratings by one notch to ‘A-.’”

JCR also raised India’s country ceiling by one notch to A.

Growth, consumption underpin upgrade

JCR said India, with a population of more than 1.4 billion and nominal GDP of $3.9 trillion, recorded 7.7% real GDP growth in FY2026, with private consumption remaining robust amid personal income tax cuts and reductions in GST rates.

The agency expects the economy to maintain a growth rate of more than 6% in FY2027.

JCR noted that inflation has risen since the beginning of 2026, driven by higher food prices linked to unfavourable weather conditions and elevated energy prices amid escalating tensions in the Middle East. However, it said inflation has remained within the Reserve Bank of India’s target range.

The agency also highlighted the improvement in India’s banking sector. The gross non-performing loan ratio fell to 1.8% at the end of March 2026, while capital adequacy and profitability remained sound.

Fiscal deficit falls as capital spending stays high

JCR said India continues to face structural fiscal challenges stemming from complex intergovernmental fiscal relations, fiscal transfers aimed at reducing disparities among states and fiscal management that is susceptible to electoral cycles.

However, it said the government has restrained the growth of current expenditure, including subsidies, while placing greater emphasis on capital expenditure, particularly infrastructure investment.

“The quality of fiscal expenditure has therefore improved,” JCR said.

The central government’s fiscal deficit fell to 4.4% of GDP in FY2026 from 4.7% in the previous fiscal year, while capital expenditure remained at a high level. The central government debt-to-GDP ratio stood at 56.1% at the end of FY2026 and is expected to decline gradually.

JCR, however, flagged that general government debt, including state government debt, and the associated interest burden remain high. It said it will continue to monitor whether government capital expenditure can spur private investment and reduce the economy’s dependence on government spending while sustaining growth.

The agency also cited stronger asset quality and capital adequacy in the non-banking financial sector, wider access to financial services through digital public infrastructure and the adoption of digital payments and direct benefit transfers.

Despite a persistent trade deficit, JCR said India’s current account deficit remains contained, supported by a surplus in services. It added that India’s foreign exchange reserves are ample and significantly exceed its short-term external debt, providing resilience against external shocks.