NEW DELHI — Japan Credit Rating Agency has upgraded India’s sovereign credit rating by one notch to A- from BBB+, citing sustained economic growth, stronger financial-sector fundamentals and improvements in the quality of government spending. The outlook remains stable.
The upgrade puts India in the A-rated category under JCR’s scale and makes the Japanese agency more positive on the country than Fitch Ratings, Moody’s Ratings and S&P Global Ratings. Fitch rates India at BBB-, Moody’s at Baa3 and S&P at BBB, all below JCR’s new assessment.
JCR said India’s economy has maintained growth of around 7 per cent, supported by robust private consumption and public investment. It expects real economic growth to remain above 6 per cent in the 2026-27 financial year.
India recorded 7.7 per cent real GDP growth in FY26, while growth in the first quarter of FY27 was 7.8 per cent, according to government data. JCR attributed the recent strength partly to resilient domestic consumption and public investment.
The agency also cited structural measures including the goods and services tax and the expansion of digital public infrastructure. It said these policies had strengthened the foundations for productivity and longer-term economic development.
Improvements in the financial system were another factor behind the decision. The gross non-performing loan ratio in India’s banking sector fell to 1.8 per cent at the end of March 2026, while capital adequacy and profitability remained sound. JCR linked the improvement to measures including the Insolvency and Bankruptcy Code, government capital support for banks and stronger supervision by the Reserve Bank of India.
The agency also said the financial position of non-bank financial companies had improved. Wider use of digital payments and direct transfers of government benefits has also helped strengthen financial-sector resilience and expand access to formal financial services.
Fiscal consolidation provided another reason for the upgrade. The central government’s fiscal deficit declined to 4.4 per cent of GDP in FY26 from 4.7 per cent a year earlier, even as capital expenditure remained elevated. JCR said the shift towards infrastructure and other productive investment, alongside tighter control of current spending, had improved the quality of government expenditure.
The agency, however, cautioned that India’s public finances remain a weakness. The central government’s debt stood at 56.1 per cent of GDP at the end of FY26, and JCR expects it to decline gradually. But debt across the general government, which includes state governments, remains high, as does the associated interest burden.
JCR pointed to the structure of India’s federal finances as a continuing constraint. Transfers between the Centre and states, efforts to reduce disparities among states and the influence of election cycles on fiscal policy can keep government deficits elevated, the agency said.
The central government has set out a medium-term objective of bringing its debt ratio down to about 50 per cent of GDP by FY31. JCR said it would watch whether continued public investment succeeds in attracting more private investment and reducing the economy’s reliance on government spending while maintaining strong growth.
India’s external position also supported the rating decision. JCR noted that although the country continues to run a trade deficit because of strong domestic demand, its current-account deficit remains contained by a surplus in services. Foreign-exchange reserves are also substantially higher than short-term external debt, providing a buffer against external shocks.
Inflation has risen since the beginning of 2026, partly because of higher food prices linked to adverse weather and increased energy costs amid tensions in the Middle East. JCR said inflation nevertheless remained within the Reserve Bank of India’s target range.
JCR had maintained India’s BBB+ rating since 2007, including through the global financial crisis, the Covid-19 pandemic and subsequent geopolitical disruptions. Its latest decision therefore represents a substantial reassessment of the country’s credit profile, while leaving high public debt and the need for stronger private investment as areas to watch.
