Moody's upgrades rating of Modi's India

By Vijay Kumar

RATING agency Moody's today changed India's outlook to positive from stable. The driver for the rating outlook change is Moody's view that India's policymakers are establishing a framework that will likely:

• Allow India's growth to continue to outperform that of its peers over the medium-term; and

• Improve India's macro-economic, infrastructure and institutional profile.

Moody's expects these structural advantages, supported by relatively benign global commodity prices and liquidity conditions, will keep India's growth higher than that of its peers over the rating horizon.

However, 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.

Moody's believes that 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.