Moody's Investors Service upgraded the sovereign rating outlook for India to 'positive' from 'stable', citing an increasing possibility that measures taken by policymakers will enhance the country's economic strength.
The rating agency affirmed its ratings for India at 'Baa3' on Thursday. Moody's said the rating incorporates credit strengths such as its diversified economy, robust growth prospects, relatively high domestic savings rate and high international reserve buffers.
The 'Baa3' rating also reflects weak performance on fiscal, inflation and infrastructure-related metrics. Moreover, the asset quality and capital ratios of the banking system are relatively weak.
According to Moody's, the actions taken by policymakers are establishing a framework that will help India's economic growth to outperform that of its peers and to improve its macro-economic and institutional profile.
The improvement in growth would in turn strengthen the financial position over coming years, Moody's said.
Further, the agency said recent measures to address inflation, keep external balances in check, simplify the regulatory regime for investors, increase foreign direct investment, and facilitate infrastructure development will reduce some of India's sovereign credit constraints.
Many of these steps are at relatively early stages of design and have yet to be implemented. The agency expects the ability of policymakers to strengthen the credit profile to a level consistent with a higher rating to be become apparent over the coming 12-18 months.
Moody's said the evidence over the coming months that policymakers are likely to be successful in its efforts would lead to the rating being considered for an upgrade.
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