Deficit, inflation limit rating upgrade: Moody's - Times of India

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NEW DELHI: India's fiscal deficit and stubborn inflation limit any upgrade in the country's sovereign rating but economic recovery is expected to sustain, global ratings agency Moody's Investors Service said in a report on Wednesday.

Faster-than-expected economic growth in the April-June quarter, a stable government, buoyant stock markets and expectations of a forward movement in reforms has raised hopes of a rating upgrade. Moody's has a Baa3 rating with a stable outlook. This is the lowest investment grade rating. Moody's said India's economic recovery, reflected in 5.7% GDP growth in April-June quarter, was in line with its long-held view that growth deceleration to sub-5% levels over the last two years would reverse over time.

"Higher growth is likely to increase tax revenues and capital inflows. This will reverse some of the weakening that has occurred in India's fiscal and external position in recent years. India's macroeconomic outlook will also improve if, as we expect, the authorities implement policies that ease inflationary pressures and increase infrastructure investment," the agency said.

"Nonetheless, we forecast India's fiscal, inflation and infrastructure metrics to remain weaker than the median for similarly rated peers. While stronger growth in this large and diverse economy will help to counterbalance these credit challenges, they limit further upward momentum in the sovereign rating."