Japanese rating agency upgrades India’s rating to A-; finance ministry says reflects solid growth | Business News

Pointing out that the Indian economy has maintained a high growth rate of around 7%, the JCRA said the country’s growth is supported by robust private consumption and public investment. The growth momentum was sustained in Q1 of FY27, with real GDP growing by 7.8%, despite prevailing global headwinds, the ministry said.

“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”,” the JCRA said.

Fifteenth Finance Commission Chairman N K Singh said the ‘A’ rating is back after a gap of over 35 years.

“JCRA has upgraded India to ‘A-’. Recognition of India’s growth momentum, macro stability, deep structural reforms, and the strength of Centre-State partnership. The last ‘A’ was Moody’s A2 rating given in 1988, which India lost in the 1990-91 BoP crisis,” he said.

The JCRA also noted that the banking sector’s non-performing loan ratio has declined to below 2%, helped by the establishment of the Insolvency and Bankruptcy Code and the Reserve Bank of India’s (RBI) strengthened financial supervision and macroprudential policies. Asset quality and capital adequacy have also improved in the non-banking financial sector, it said.

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, the JCRA said.

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, it said.

Meaning, previous rating upgrades

This is the second such upgrade by a Japanese rating agency in recent times, coming a day after official data showed that India’s GDP grew 7.8% in the April-June quarter. In September 2025, Japanese credit rating agency, Rating and Investment Information, Inc. (R&I), had upgraded India’s long-term sovereign credit rating to ‘BBB+’ from ‘BBB’, while retaining the “Stable” Outlook for the Indian economy. This came after S&P upgraded India’s sovereign rating to ‘BBB’ from ‘BBB-’ in August 2025.

JCRA’s rating scale stretches from ‘AAA’ to ‘D’, with the former being the highest level of certainty that a borrower will honour its debt. A rating of ‘D’, in JCRA’s judgment, signals that all financial obligations “are, in effect, in default”. An ‘A’ rating means there is a “high level of certainty to honour the financial obligations”.

JCRA attaches a plus (+) or minus (-) sign to the rating symbols from ‘AA’ to ‘B’ to indicate relative standing within each of those rating scales. A ‘stable’ outlook means a rating is not likely to change in the foreseeable future.

Challenges

The Japan Credit Rating Agency said the economy is expected to retain a high growth rate of over 6% in FY 2026-27. While inflation has been rising since the beginning of 2026, reflecting higher food prices caused by unfavorable weather conditions and higher energy prices amid escalating tensions in West Asia, nevertheless, the inflation rate has remained within the RBI’s target range, it said.

It, however, noted some structural challenges on the fiscal front 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.

It also said that the central government’s debt-to-GDP ratio stood at 56.1% at the end of FY26 and is expected to decline gradually. However, it flagged that the general government debt, including those of state governments, and the associated interest burdens remain high.

The government’s restrained growth in current expenditures including subsidies over the recent years while placing greater emphasis on capital expenditure, particularly infrastructure investment, has helped raise the economy’s potential growth rate, the agency said.

In FY26, 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.

“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,” it said.

On the external front, while having a trade deficit amid robust domestic demand, 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,” it said.