Japan’s rating agency upgrades India’s sovereign rating
Japanese Credit Rating Agency (JCRA) has raised India’s sovereign credit rating by one notch to A- from BBB , citing sustained economic growth, resilient domestic consumption, public investment and strengthening financial-sector fundamentals. The upgrade applies to India’s long-term foreign-currency and local-currency issuer ratings. JCRA has also raised India’s country ceiling by one notch to A.
The rating agency said India has continued to expand at a robust pace, with economic growth remaining around 7% and supported by strong private consumption and government-led investment. It expects the Indian economy to maintain growth of more than 6% in FY2027. JCRA highlighted a series of policy and structural measures that it believes have strengthened the foundations of the Indian economy.
These include the expansion of digital public infrastructure and the implementation of the Goods and Services Tax (GST), which the agency said have contributed to improving productivity and economic efficiency. The agency also pointed to a significant improvement in the health of India’s banking system. The gross non-performing loan (NPL) ratio fell to 1.8% at the end of March 2026, reflecting an improvement in asset quality.
JCRA attributed the strengthening of the banking sector to measures including the Insolvency and Bankruptcy Code (IBC), government capital support for banks and tighter oversight by the Reserve Bank of India (RBI). India, with a population exceeding 1.4 billion and a nominal GDP of around $3.9 trillion, recorded 7.7% real GDP growth in FY2026, according to the agency. Private consumption remained a key growth driver during the year, receiving support from personal income-tax reductions and cuts in GST rates. Despite the positive assessment, JCRA flagged inflation and external risks facing the economy.
The agency said inflation had picked up during 2026, driven primarily by higher food prices following adverse weather conditions and increased energy costs amid heightened tensions in the Middle East. However, inflation has so far remained within the RBI’s target range, it noted. JCRA also highlighted structural challenges in India’s public finances. These include complex fiscal relationships between the Centre and states, transfers aimed at reducing regional disparities and the potential impact of election cycles on fiscal management.
At the same time, the agency noted an improvement in the composition of government spending. The Centre has restrained the expansion of current expenditure, including subsidies, while continuing to prioritise capital expenditure, particularly infrastructure development. India’s fiscal position also featured positively in JCRA’s assessment. The central government’s fiscal deficit declined to 4.4% of GDP in FY2026 from 4.7% in the previous fiscal year, even as capital expenditure remained at elevated levels.
The agency said the shift towards infrastructure and other capital investments has improved the quality of government expenditure. Central government debt stood at 56.1% of GDP at the end of FY2026 and is expected to gradually decline. However, JCRA cautioned that broader general government debt, which includes state-level borrowing, remains high and continues to create a significant interest burden. JCRA also identified India’s sizeable foreign exchange reserves as an important source of protection against external shocks.
The agency noted that the country’s forex reserves are substantially higher than its short-term external debt, providing a strong cushion against potential external financing pressures and global market volatility.
These include the expansion of digital public infrastructure and the implementation of the Goods and Services Tax (GST), which the agency said have contributed to improving productivity and economic efficiency. The agency also pointed to a significant improvement in the health of India’s banking system. The gross non-performing loan (NPL) ratio fell to 1.8% at the end of March 2026, reflecting an improvement in asset quality.
JCRA attributed the strengthening of the banking sector to measures including the Insolvency and Bankruptcy Code (IBC), government capital support for banks and tighter oversight by the Reserve Bank of India (RBI). India, with a population exceeding 1.4 billion and a nominal GDP of around $3.9 trillion, recorded 7.7% real GDP growth in FY2026, according to the agency. Private consumption remained a key growth driver during the year, receiving support from personal income-tax reductions and cuts in GST rates. Despite the positive assessment, JCRA flagged inflation and external risks facing the economy.
The agency said the shift towards infrastructure and other capital investments has improved the quality of government expenditure. Central government debt stood at 56.1% of GDP at the end of FY2026 and is expected to gradually decline. However, JCRA cautioned that broader general government debt, which includes state-level borrowing, remains high and continues to create a significant interest burden. JCRA also identified India’s sizeable foreign exchange reserves as an important source of protection against external shocks.
