Moody's has revised India's rating outlook to "positive" from "stable" saying the framework being established by the country's policymakers will boost its growth and improve the macro-economic, infrastructure and institutional profile.
The international rating agency also affirmed India's Baa3 issuer and senior unsecured ratings and P-3 short-term local currency issuer rating.
"Moody's decision to revise the ratings outlook to positive from stable is based on its view that there is an increasing probability that actions by policymakers will enhance the country's economic strength and, in turn, the sovereign's financial strength over coming years," a Moody's statement said.
Favourable demographics, economic diversity, as well as high savings and investment rates have helped India to grow faster than similarly rated peers over the last decade, according to Moody's.
The agency expects these structural advantages, supported by relatively benign global commodity prices and liquidity conditions, to keep India's growth higher than that of its peers over the rating horizon.
At the same time, negative pressures on the inflation and balance of payments fronts continue to be drags on the recovery, Moody's said, adding that the recent government measures to address such risks will reduce some of the sovereign credit constraints of the country.
"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."
India's rating also reflects its weaker performance on the fiscal, inflation and infrastructure-related metrics. Besides, the country's banking system's asset quality, loan loss coverage and
capital ratios are relatively weak.