Japan Credit Rating Agency Upgrades India to 'A' Rating After 35 Years

Indian Economy · 9 September 2026 · Based on The Hindu (original report)

Worth reading — 1 past UPSC question on this theme (Prelims GS-1 2022).

2-minute summary

The Japan Credit Rating Agency (JCRA) has upgraded India's sovereign credit rating from 'BBB+' to 'A-', marking the country's return to an 'A' grade rating for the first time since early 1988. This upgrade is a significant departure from the assessments of major global rating agencies (the 'Big Three' — S&P, Moody's, and Fitch), which continue to rate India just a notch or two above 'junk' status. JCRA attributed this upgrade to India's robust economic growth, growth-oriented government policies, and the resilient health of its financial system. A sovereign credit rating evaluates a nation's ability and willingness to meet its debt obligations. This upgrade is expected to lower borrowing costs for Indian entities in international markets, especially in Japan's Samurai bond market, thereby optimizing taxpayer money utilization and boosting investor confidence.

Why it's in the news

The Japan Credit Rating Agency (JCRA) upgraded India's sovereign credit rating to 'A-' from 'BBB+', marking India's return to the prestigious 'A' grade after more than 35 years.

Facts to remember

The Japan Credit Rating Agency upgraded India's sovereign credit rating from 'BBB+' to 'A-', marking the country's return to an 'A' grade rating for the first time since early 1988.
A sovereign credit rating evaluates a nation's ability and willingness to meet its debt obligations, influencing interest rates paid on international debt.
Article 292 empowers the Central Government to borrow money upon the security of the Consolidated Fund of India within limits fixed by Parliament.
Article 293 governs borrowing by States and specifies conditions under which a State may raise loans with or without the consent of the Centre.

Background and context

Sovereign credit ratings (SCRs) assess the creditworthiness of a country, influencing the interest rates it pays on international debt. Historically, India has faced conservative assessments from the 'Big Three' global rating agencies—S&P, Moody's, and Fitch—which have consistently kept India at the lowest investment grade (BBB- or equivalent), just above speculative or 'junk' status. India has long contested these ratings. The Economic Survey 2020-21 dedicated an entire chapter to criticizing the methodology of global rating agencies, arguing that they exhibit systemic bias against developing nations. The survey highlighted that India, despite being the fifth-largest economy with a track record of zero sovereign defaults, was rated far below its economic peers. The JCRA's upgrade to 'A-' validates India's long-standing stance, reflecting its strong foreign exchange reserves, robust banking sector post-NPAs cleanup, and sustained GDP growth.

Constitutional provisions

Article 292 — Empowers the Central Government to borrow money upon the security of the Consolidated Fund of India within limits fixed by Parliament.
Article 293 — Governs borrowing by States, specifying that a State may not raise any loan without the consent of the Centre if there is still outstanding any part of a loan made to the State by the Centre.

Committees and reports

Economic Survey 2020-21 (Chapter on Sovereign Credit Ratings) — Analyzed bias in sovereign credit rating methodologies, showing that India's economic fundamentals (growth, inflation, debt-to-GDP, foreign reserves) do not align with its low ratings.
N.K. Singh Committee (FRBM Review Committee) — Recommended a debt-to-GDP ratio of 60% (40% for Centre, 20% for States) as a key metric for fiscal prudence and sovereign creditworthiness.

International organisations

Japan Credit Rating Agency (JCRA) — A prominent Japanese credit rating agency that provides credit ratings for sovereign and corporate issuers, highly influential for issuers targeting the Japanese capital market (Samurai bonds).
The 'Big Three' Credit Rating Agencies (S&P, Moody's, Fitch) — Dominant global rating agencies that control over 90% of the rating market, whose conservative ratings of India have been a point of debate.

Previous UPSC questions on this theme

Prelims GS-1 2022 — Consider the following statements : 1. In India, credit rating agencies are regulated by Reserve Bank of India. 2. The rating agency popularly known as ICRA is a public limited company. 3. Brickwork Ratings is an Indian credit rating agency. Which of the statements given above are correct ? (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3

Mains practice: Sovereign credit ratings significantly influence a country's cost of foreign borrowing and capital inflows. In this context, critically analyze the methodology of global credit rating agencies and explain the significance of India's recent rating upgrade by the Japan Credit Rating Agency (JCRA).

Sovereign Credit Ratings (SCRs) assess a nation's ability and willingness to service its debt. While major Western agencies (S&P, Moody's, Fitch) have kept India at the lowest investment grade (BBB-), the Japan Credit Rating Agency (JCRA) recently upgraded India to 'A-', its first 'A' grade in over 35 years.

**Issues with Global Rating Methodologies:**

• **Subjective Qualitative Parameters:** Global agencies assign heavy weightage (nearly 30-40%) to qualitative metrics like 'institutional strength' and 'governance standards', which are often subjective and biased against developing nations.

• **Ignoring Economic Fundamentals:** India's robust GDP growth, massive foreign exchange reserves, and zero history of sovereign default are undervalued compared to its fiscal deficit and debt-to-GDP ratio.

• **Pro-cyclicality:** Ratings tend to be pro-cyclical, upgrading countries during booms and downgrading them during distress, which exacerbates financial volatility in emerging economies.

**Significance of the JCRA Upgrade:**

• **Lower Borrowing Costs:** The upgrade directly reduces the risk premium on Indian debt, lowering yields and borrowing costs for Indian corporates and public sector undertakings in international markets (especially Samurai bonds).

• **Boost to Capital Inflows:** An 'A' rating signals macroeconomic stability, attracting long-term institutional investors, pension funds, and Foreign Direct Investment (FDI).

• **Validation of Reforms:** It acknowledges India's structural reforms, banking sector cleanup, and growth-oriented fiscal policies, challenging the conservative stance of Western rating giants.

**Conclusion:**

While the JCRA upgrade is a welcome validation of India's economic resilience, India must continue its path of fiscal consolidation and structural reforms. Concurrently, India should advocate for a more transparent, objective, and representative global credit rating architecture that reflects the true economic realities of emerging markets.

Prelims practice questions

Q1. With reference to Sovereign Credit Ratings (SCRs), consider the following statements: 1. A sovereign credit rating is an assessment of a country's overall economic wealth and GDP potential. 2. India has never defaulted on its sovereign debt obligations. 3. The Japan Credit Rating Agency (JCRA) is regulated directly by the International Monetary Fund (IMF). Which of the statements given above is/are correct?

1 and 2 only
2 only
2 and 3 only
1, 2 and 3

Answer: B. Statement 1 is incorrect because SCR is an assessment of a country's ability and willingness to service its debt, not its overall wealth or GDP potential. Statement 2 is correct; India has a flawless record of zero sovereign defaults. Statement 3 is incorrect; JCRA is a private Japanese credit rating agency regulated by the Financial Services Agency (FSA) of Japan, not the IMF.

Q2. Which of the following best describes the term 'Samurai Bonds' often associated with international borrowing?

Bonds issued by the Government of India specifically for Japanese bilateral aid
Dollar-denominated bonds issued by Japanese banks in the US
Rupee-denominated bonds issued in overseas markets by Indian entities
Yen-denominated bonds issued in Tokyo by non-Japanese entities

Answer: D. Samurai bonds are Yen-denominated bonds issued in Tokyo by non-Japanese entities (like the Government of India or Indian corporates) and are subject to Japanese regulations. Rupee-denominated bonds issued overseas are called Masala Bonds.

Q3. In the context of the Indian economy, which of the following authorities regulates domestic Credit Rating Agencies (CRAs)?

Insolvency and Bankruptcy Board of India (IBBI)
Ministry of Finance
Securities and Exchange Board of India (SEBI)
Reserve Bank of India (RBI)

Answer: C. In India, Credit Rating Agencies (CRAs) are registered and regulated by the Securities and Exchange Board of India (SEBI) under the SEBI (Credit Rating Agencies) Regulations, 1999.

Revision flashcards

What is a Sovereign Credit Rating (SCR)? It is an assessment of a country's ability and willingness to meet its debt obligations (both principal and interest) on time, capturing the default risk of lending to that sovereign.
Who are the 'Big Three' global credit rating agencies? S&P Global Ratings, Moody's Investors Service, and Fitch Ratings. They collectively control over 90% of the global credit rating market.
What is the significance of India's upgrade to 'A-' by the Japan Credit Rating Agency (JCRA)? It is India's first 'A' grade rating in over 35 years (since 1988), which lowers international borrowing costs (especially in Japanese markets) and validates India's strong macroeconomic fundamentals.
Which Indian constitutional provisions govern public borrowing? Article 292 (borrowing by the Union Government secured by the Consolidated Fund of India) and Article 293 (borrowing by State Governments).
What is the regulatory body for Credit Rating Agencies operating within India? The Securities and Exchange Board of India (SEBI), under the SEBI (Credit Rating Agencies) Regulations, 1999.