Japan Credit Rating Agency Upgrades India's Sovereign Rating to 'A-', Outlook Stable

The Japan Credit Rating Agency (JCR) on Wednesday upgraded India’s sovereign credit rating by one notch to ‘A-‘ from ‘BBB+’, citing the country’s strong economic growth, improving fiscal quality and strengthening financial system. The outlook on the rating has been kept ‘Stable’.

The upgrade covers both India’s foreign-currency and local-currency long-term issuer ratings. JCR has also raised India’s country ceiling by one notch to A.

“The Indian economy has maintained a high growth rate of around 7%, supported by robust private consumption and public investment. The government of India has steadily implemented policies conducive to productivity growth and economic development, including the development of digital public infrastructure and the implementation

of the goods and services tax (GST), strengthening the country’s economic foundations as compared to the past,” JCR said in its report on September 2.

Pointing to improving asset quality of banks, the rating agency added that the banking sector’s non-performing loan ratio has declined to below 2%, helped by the establishment of the Insolvency and Bankruptcy Code (IBC) and the Reserve Bank of India’s (RBI) strengthened financial supervision and macroprudential policies.

“The financial foundation of the non-banking financial sector has also strengthened, contributing to a significant improvement in the soundness of the financial system in recent years. 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 has also raised the country ceiling by one notch to ‘A’,” it said.

Fiscal consolidation supports rating upgrade

JCR also recognised improvements in India’s fiscal management. While the rating agency acknowledged that India continues to face structurally high fiscal deficits because of complex Centre-state fiscal relations, fiscal transfers and spending pressures linked to electoral cycles, it noted a shift towards capital expenditure and infrastructure investment.

The central government’s fiscal deficit declined 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, which JCR expects to decline gradually.

“In FY2026, the central government reduced its fiscal deficit from 4.7% of GDP in the previous fiscal year to 4.4% while maintaining capital expenditure 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. However, the general government debt, including those of state governments, and the associated interest burdens remain high. JCR will continue to monitor whether government capital expenditure can induce private investment and reduce the economy’s dependence on government spending while sustaining economic growth,” the rating agency said.

Highlighting challenges, JCR also said India, a democratic federal state, faces structural challenges that tend to keep fiscal deficits at elevated levels due to (i) complex intergovernmental fiscal relations; (ii) fiscal transfer arrangements aimed at reducing disparities among states; and (iii) fiscal management that is susceptible to electoral cycles. In recent years, however, the government has restrained growth in current expenditures including subsidies while placing greater emphasis on capital expenditure, particularly infrastructure investment, that helps raise the economy’s potential growth rate. The quality of fiscal expenditure has therefore improved.

Public Sector Banks’ Performance Improves

JCR in its statement said, “The asset quality of public-sector banks, which had been a source of vulnerability in the financial system, has improved substantially, supported by the establishment of Insolvency and Bankruptcy Code, capital injections by the government, and strengthened supervision by the RBI. The banking sector’s gross nonperforming loan ratio declined to 1.8% at the end of March 2026, with its capital adequacy and profitability staying sound. Asset quality and capital adequacy have also improved in the non-banking financial sector, enhancing the overall soundness of the financial system as compared to the past.”

In addition, the development of digital public infrastructure has expanded access to financial services for a broad range of people and businesses, including low-income households and microenterprises. The widespread adoption of digital payments and the direct transfer of government benefits to bank accounts have promoted financial inclusion and contributed to greater visibility of informal economic activity, it added.

India continues to register a trade deficit amid its robust domestic demand. However, its current account deficit stays contained, supported by a surplus in the services balance. Its foreign exchange reserves are ample and significantly exceed its short-term external debt, providing the country with strong resilience to external shocks, JCR said.

The report comes days after India’s economy grew 7.8% in the April-June quarter, comfortably beating expectations amid a surge in investment and manufacturing activity.