Global rating agency Moody’s has said that it will upgrade India's rating if the government is able to push through reforms, inflation stabilises, regulatory environment improves and infrastructure investment rises. In its latest report the rating agency has said that “India's rating could be upgraded if it's expectations of gradual but credit positive reforms are realised in actual policy implementation and if the recent improvement in inflation, fiscal and current account ratios is sustained.”
Moody’s which is having a 'Baa3' rating on India with a positive outlook, said that it had changed its outlook on India in April to positive from stable, based on premise that the proposed policies are likely to lower sovereign credit risk by stabilising inflation, improving the regulatory environment, increasing infrastructure investment while maintaining the ongoing improvement in fiscal ratios.
Though, it also cautioned that rating outlook would likely return to stable if there was 'a slowdown or reversal of the policy reform process, if banking system metrics continue to weaken, or if there is a decline in foreign exchange reserves coverage of external debt and imports. It also said that India's performance on political stability, regulatory quality, control of corruption and government effectiveness is weaker than the median for sovereigns rated in the Baa range.
The agency highlighted that over the last year, performance on inflation and the balance of payments have improved, reflecting policy efforts. It also said the Modi government has made some progress on reforms to improve the operating environment and ease investment procedures, but the progress has stalled in two key areas -- passing a unified Goods and Services Tax (GST) and the Land Acquisition Act.