Japan's rating agency upgrades India from BBB+ to A- with stable outlook; here's why

Japan Credit Rating Agency, Ltd. (JCR) has upgraded India’s foreign currency long-term issuer rating and local currency long-term issuer rating by one notch from BBB+ to A-, while maintaining a Stable outlook on both. In its report published on Wednesday, JCR also raised India’s country ceiling by one notch to A.

Why JCR upgraded India

JCR said the upgrade reflects India’s solid economic growth, the effectiveness of policies aimed at strengthening the foundations for growth, and the improved soundness of the financial system.

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According to the agency, the Indian economy has maintained a high growth rate of around 7%, supported by strong private consumption and public investment. It said government measures such as digital public infrastructure and the goods and services tax have steadily strengthened the country’s economic base.

JCR said India’s economy grew 7.7% in real GDP terms in FY2026, with private consumption supported by personal income tax cuts and reductions in GST rates. It expects growth to remain above 6% in FY2027. It also noted that inflation has risen since the start of 2026 because of higher food prices linked to unfavourable weather and higher energy prices amid tensions in the Middle East, but remains within the Reserve Bank of India’s target range.

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Fiscal position and debt

JCR said India continues to face structural challenges that keep fiscal deficits elevated, including intergovernmental fiscal relations, transfers aimed at reducing disparities among states, and fiscal management affected by electoral cycles.

Even so, it said the government has improved the quality of expenditure by restraining current spending, including subsidies, while maintaining a greater focus on capital expenditure, especially infrastructure. In FY2026, the Centre reduced its fiscal deficit to 4.4% of GDP from 4.7% a year earlier, while keeping capital expenditure high. The central government debt-to-GDP ratio stood at 56.1% at the end of FY2026 and is expected to decline gradually. JCR, however, said general government debt, including that of states, and the related interest burden remain high.

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Financial system and external position

JCR said the banking sector’s asset quality has improved sharply. The gross non-performing loan ratio fell to 1.8% at the end of March 2026, helped by the Insolvency and Bankruptcy Code, government capital support and stronger RBI supervision. It added that capital adequacy and profitability remained sound, while asset quality and capital adequacy also improved in the non-banking financial sector.

The agency said digital public infrastructure has expanded access to financial services and supported financial inclusion through digital payments and direct benefit transfers.

On the external front, JCR said India continues to run a trade deficit because of strong domestic demand, but the current account deficit remains contained due to a surplus in services. It added that foreign exchange reserves are ample and comfortably exceed short-term external debt. JCR said the ratings are unsolicited, though the rating stakeholder participated in the process.