Credit rating agency Moody’s Investor Service increased India's local currency government bond rating to Ba1 from Ba2 on the governments’ strong economy and recent fiscal reforms. The outlook on the local currency rating remains positive.

“The upgrade of the local currency sovereign rating to Ba1 was prompted by the Indian government's adoption of a medium-term (2010-2015) fiscal consolidation strategy, which is supported by a broadening structural reform program,” said Aninda Mitra, a Moody's Vice President.

Moody’s said the recent reforms will result in gradual improvements in the government's financial strength, support fiscal credibility, and improve economic resiliency. The absence of any heightened recourse to non-market measures for financing the government's large stimulus program influenced Moody’s rating change decision.

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The Indian economy's resilience throughout the global recession and the weakening of the structural and policy reasons that could still allow the government to prioritize its external obligations over its domestic obligations was also a factor to upgrade, Moody’s said.

Moody's affirmed India's Baa3 foreign currency government bond rating, with stable outlook. The Indian government's foreign currency bond rating and its stable outlook is well positioned given the country's reasonably healthy external fundamentals, and macroeconomic prospects.

India's short-term issuer rating of NP was not affected by this rating action. Likewise, India’s ceilings remain unchanged at Aa3 for local currency bonds, Baa2 for foreign currency bonds, A1 for local currency deposits, and Ba1 for foreign currency deposits.

Moody's last rating action on India was taken on December 15, 2009, at which time it changed the outlook for the Ba2 local currency sovereign ratings to positive from stable.

“Ongoing policy normalization, disinvestments, fuel subsidy reforms, along with impending tax reforms will support the government's fiscal and debt position and are in line with, and may even outperform, the government debt targets envisaged in the 'revised roadmap for fiscal consolidation' as laid out by the country's Thirteenth Finance Commission,” said Mitra.

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