Rating agency Moody’s Investors Service today (Oct 5) upgraded India’s sovereign rating outlook to ‘stable’ from ‘negative’.

"The decision to change the outlook to stable reflects Moody's view that the downside risks from negative feedback between the real economy and financial system are receding. An economic recovery is underway with activity picking up and broadening across sectors," said Moody's.

Moody’s said it expects real GDP to exceed pre-pandemic levels of 2019-20 this year itself, as the sustained economic recovery is picking up momentum with activity upticks broadening across sectors. It expects 2021-22 to record 9.3% growth in GDP, followed by 7.9% next year.

The rating agency however retained India’s rating, both of foreign and domestic currencies, at Baa3, reflecting the lowest investment grade rating. In June 2020, Moody’s had downgraded India’s sovereign rating to Baa3 from Baa2 with a negative outlook

Moody’s has also affirmed India’s other short-term local currency rating at P-3, which points to the acceptable ability to repay short-term obligations

“While risks stemming from a high debt burden and weak debt affordability remain, Moody’s expects that the economic environment will allow for a gradual reduction of the general government fiscal deficit over the next few years, preventing further deterioration of the sovereign credit profile,” the agency noted.