Lost and found: An ‘A’ for India’s long game

After decades of failing to achieve an "A" credit rating, India finally achieved a significant milestone on September 2. The Japan Credit Rating Agency upgraded India's long-term sovereign rating from BBB+ to A-, raising the country's ceiling to A. This marked the first time India held an "A" grade since January 1988, when Moody's assigned it the A2 rating.

However, the previous "A" grade did not last as India's borrowing fueled growth in the 1980s, leading to a fiscal deficit of 9.1% of GDP and a current account deficit of 3.1% of GDP in FY 1989-90. Political instability, with three prime ministers in as many years, delayed reforms, and tensions between advanced economies and the Global South influenced ratings.

The Japan Credit Rating Agency cited a high growth rate of around 7%, supported by robust private consumption, public investment, personal income-tax cuts, GST reductions, and a declining nonperforming loan ratio in the banking sector. This upgrade is significant as it is an external verdict, validates institutions built through Centre-state consensus, and could lead to lower risk premia in corporate boardrooms, increasing the pressure for other rating agencies to follow suit.