Moody's upgrades India's rating outlook to positive

Rating agency Moody's today changed India's outlook to positive from stable, saying that the government is taking steps to improve economic strength and stressed that a rating upgrade could follow in about 12-18 months times.

"Moody's decision to revise the ratings outlook to positive from stable is based on its view that there is an increasing probability that actions by policy makers will enhance the country's economic strength and, in turn, the sovereign's financial strength over coming years," the US-based agency said in a statement.

Moody's has a 'Baa3' rating on India, which stands for below investment grade. "The ability of policymakers to strengthen India's sovereign credit profile to a level consistent with a higher rating will become apparent over the next 12-18 months," Moody's said.

It said favourable demographics, economic diversity, as well as high savings and investment rates would act as structural advantage for India. Besides, relatively benign global commodity prices and liquidity conditions, will keep India's growth higher, Moody's Investors Service said.

"Moody's India upgrade validates: government reform thrust, better growth, macro outlook, budget strategy of public investment, fiscal discipline," Chief Economic Advisor Arvind Subramanian tweeted.

The rating agency, however, said that recurrent inflationary pressures, occasional balance of payments pressures, and an uncertain regulatory environment have led to volatility in growth and exposed India to financial shocks, thereby constraining its credit profile.

"The 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," it said.