Moody's on Tuesday said it could upgrade India's rating in 1-2 years if it is convinced that the economic reforms are tangible.
Moody's, which has a 'Baa3' rating with a positive outlook, said evidence of policymakers working towards a faster fiscal consolidation, reducing the debt-GDP ratio and addressing infrastructure and monsoon volatility challenges will determine an upgrade, going forward.
"We have a positive outlook on India. On balance, the risk is on the upside. We are continuously monitoring the rating. We see pressure building up in 1-2 years and any tangible change could bring about a change in rating," Moody's Sovereign Group Senior V-P Marie Diron told journalists.
Moody's Investors Service had in April 2015 revised India's outlook to 'positive' from 'stable' and said it could upgrade rating in 12-18 months. India's step-wise reforms have been set in motion, but weak investment and banking risk may act as speed-breakers, Moody's Investors Service said in a report.
Asked if policies are moving in the right direction for an upgrade, Diron said: "We have seen progress in implementation of reforms. What we did not anticipate is the weakness of private investment." Moody's listed six items on the list of pending reforms -the land acquisition Bill, labour law reforms, significant infrastructure investment, tangible benefit from Make in India initiative, tax administration and public sector bank reforms.
Stressing that weak financial health of public sector banks continues to pose contingent liability risk and muted private sector investment constrains India's ratings, Diron said external sector vulnerability could pose pressure.