New Delhi: In a big vote of confidence in the Narendra Modi-led government, Moody's on Thursday raised India's credit rating outlook to 'positive' and said an upgrade in its sovereign rating is also possible in the next 12-18 months.
India's sovereign rating currently stands at 'Baa3', the lowest investment grade -- just a notch above 'junk' status.
The sovereign rating and outlook for a country are often referred to as key parameters by foreign investors and global bodies to gauge its investment climate.
Upgrading the outlook from 'stable' to 'positive', the global rating agency said that India has grown faster than many other peers over the last decade and the actions of the policymakers should further boost the country's economic and financial strength in coming years.
Commenting on the upgrade, Finance Minister Arun Jaitley said the action is "significant", but the government has to do more.
"Moody's has changed rating outlook to positive from stable and affirms Baa3 rating. The upgrade in outlook is significant but we've to do more," Jaitley tweeted.
Moody's sovereign rating analyst Atsi Sheth told PTI, "Our positive rating outlook for India reflects our view that the probability has now increased that over the next twelve to eighteen months India's sovereign credit fundamentals will improve to levels consistent with a rating higher than its current Baa3 rating."
Moody's, however, said that the Indian economy is still heavily exposed to external and financial shocks because of which it has maintained 'Baa3' rating for the country.
Since 2004, Moody's has rated India at Baa3 -- at par with countries like Indonesia, Iceland and Turkey.
Other global agencies -- S&P and Fitch -- also have the same credit rating for India on grounds including high inflation, huge debt levels of the central and state governments, infrastructure sector problems and huge bad loans in the banking system.
Standard & Poor's had recently upgraded its India outlook to 'stable' while Fitch Ratings has had a 'stable' outlook for the country's credit rating since 2013.
The agency said that a rating upgrade going forward would depend on these positives propelling growth.
"There is an increasing probability that actions by the policymakers will enhance the country's economic strength and, in turn, the sovereign's financial strength over coming years," Moody's said.
"India has grown faster than similarly rated peers over the last decade due to favourable demographics, economic diversity, as well as high savings and investment rates," it added.
Minister of State for Finance, Jayant Sinha said the NDA government has restored the faith of investors and rating agencies on the growth outlook of the Indian economy.
"Moody's decision continues to reaffirm that rating agencies, global investors and our own domestic businesses have faith in India's growth outlook and our financial strength as a sovereign," he told reporters here.
The macro-economic situation, Sinha said, "has improved dramatically in last 10 months, obviously due to actions that we have taken as far as fiscal policy is concerned."
Chief Economic Advisor Arvind Subramanian said that the "upgrade of outlook proves that the government is moving in the right direction ... It validates India's commitment on fiscal discipline."
Commenting on Moody's action, Revenue Secretary Shaktikanta Das said it will improve confidence of investors in India.
"An important component of this positive outlook is the whole change in the taxation environment which is taking place over the last several months. A number of steps have been taken to position a non-adversarial tax administration," Das said.
Finance Secretary Rajiv Mehrishi said this development affirms the positive programmes and policies announced in the Budget. "I hope the next stage would be upgradation of the ratings itself."
The government has been pitching to rating agencies to improve India's credit rating, citing several reforms measures and opening up of the economy.
Moody's said: "Recurrent inflationary pressures, occasional balance of payments pressures, and an uncertain regulatory environment have contributed to periods of volatility in growth, and have exposed India to external and financial shocks, constraining its credit profile."
