2017.11.1707:34:00UTC+00Moody's Upgrades India By A Notch On Reform Progress

Moody's Investors Service on Friday raised the sovereign ratings of India for the first time since 2004, citing economic and institutional reforms.

The sovereign rating was lifted to Baa2 from Baa3 and the rating outlook was changed to 'stable' from 'positive'. The upgrade has placed India's rating at par with those of Italy and the Philippines.

"The decision to upgrade the ratings is underpinned by Moody's expectation that continued progress on economic and institutional reforms will, over time, enhance India's high growth potential and its large and stable financing base for government debt, and will likely contribute to a gradual decline in the general government debt burden over the medium term," Moody's said in a statement.

While India's high debt burden remains a constraint on the country's credit profile, Moody's said that the reforms put in place have reduced the risk of a sharp increase in debt.

The government is mid-way through a wide-ranging program of economic and institutional reforms, the rating agency added.

The agency said government efforts to reduce corruption, formalize economic activity and improve tax collection and administration, including through demonetization and Goods and Services Tax, both illustrate and should contribute to the further strengthening of India's institutions.

Moody's forecast India's economic growth at 6.7 percent for the fiscal year ending March 2018 and expects it to climb to 7.5 percent in the next financial year. The agency also said that India's growth potential is significantly higher than most other Baa-rated sovereigns.

The rating agency highlighted a number of genuine positive recent developments in India as justifications for a ratings upgrade - though its inclusion of demonetization among them should raise some eyebrows, Shilan Shah, an economist at Capital Economics, said.

However, it appears to have ignored entirely the loan waivers by several state governments that have surely undermined the outlook for public debt, Shah added.