Japan's JCR Upgrades India's Sovereign Rating To 'A-', Cites Solid Growth, Improved Financial System

Japanese credit rating agency JCR on Wednesday upgraded India's sovereign rating to 'A-' with a stable outlook, citing "solid" economic growth and improved financial parameters.

It said that India, with a population of more than 140 crore and nominal GDP of $3.9 trillion, is expected to retain a high growth rate of over 6% in the current fiscal.

The Indian economy has maintained a high growth rate of around 7%, supported by robust private consumption and public investment, the Japan Credit Rating Agency (JCR) said in its India sovereign rating.

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.

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-'," it said.

The agency had a 'BBB+' rating on India.

JCR's 'A' rating implies a high level of certainty to honour the financial obligations, while 'BBB+' denote an adequate level of certainty.

Last month, two global rating agencies, S&P and Fitch, had affirmed India's investment-grade rating, citing a dynamic and fast-growing, robust economy with policy stability and high infrastructure investment.

Indian economy grew at 7.8% in the June quarter of FY'27, beating the 7% GDP growth estimates by the RBI. The economy grew at 7.8% in FY'26.

JCR, in its rating, has considered that India faces structural challenges that tend to keep fiscal deficits at elevated levels; fiscal transfer arrangements aimed at reducing disparities among states; and 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. The quality of fiscal expenditure has therefore improved, JCR said.

In the Budget for 2024-25 (April-March), Finance Minister Nirmala Sitharaman had first announced that from FY'27 onwards, the government will endeavour to "keep the fiscal deficit each year such that the central government debt will be on a declining path as a percentage of GDP.

Consequently, in the FY'27 Budget, the government estimated the debt-to-GDP ratio for the current fiscal at 55.6% of GDP, lower than 56.1% of GDP for FY26. The government is looking to cut its debt-to-GDP ratio to 50% by March 2031.

The government has projected the fiscal deficit at 4.3% of GDP or ₹16.96 lakh crore for FY’27. The fiscal deficit target for FY'27 will, however, be 4.5% of GDP, based on the downward revision in India's nominal GDP in the new series with FY’23 as the base year.

The Centre has set a gross borrowing target of ₹16.09 lakh crore for FY27, and a net borrowing of ₹11.73 lakh crore after repaying past loans and borrowing through treasury bills.

JCR said the central government debt-to-GDP ratio stood at 56.1% at the end of FY'26 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.

It said India's current account deficit (CAD) "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.

India's current account deficit widened to $4.2 billion, or 0.5% of GDP, in the June quarter of current fiscal, from $3.4 billion a year ago. Foreign exchange reserves hit a record high of $729.33 billion in the week ended August 21.