NEW DELHI Moody's Investors Service could consider upgrading India's sovereign rating if the government's planned fiscal consolidation is faster than expected, Marie Diron, a senior vice president at its Sovereign Risk Group told Reuters.
However, if the government slows its fiscal consolidation plans or falters on its reform implementation, the ratings agency would stabilise the rating at the current "Baa3," Diron said on Thursday.
"What would potentially trigger an upgrade would be a faster progress in fiscal consolidation than we are currently expecting," Diron said in a telephone interview from Singapore.
The "Baa3" rating, the lowest investment grade rating, has a "positive" outlook.
In the recent federal budget, Finance Minister Arun Jaitley stuck to an ambitious pledge of reducing the fiscal deficit to 3.5 percent of gross domestic product from 3.9 percent, and improved tax collection could help meet that target.
Diron said India had experienced "some progress" towards reforms in infrastructure, foreign direct investment and unveiling a bankruptcy law, but said it had not seen "broad scale reforms" such as a revamped goods and services tax or new regulations for land acquisition.
"We expect that reform progress to be bumpy and to come with sparks of progress and then maybe some periods of more slowness. But as long as the direction continues and gradually, we should see some positive effects on the economy," she said.
Diron added Moody's was focussing on the credibility and effectiveness of monetary policy framework more than on who the central bank governor was when asked about the prospect that Reserve Bank of India Governor Raghuram Rajan would be re-appointed to a second term.
"We would look really at what the monetary policy framework is, what are the prospects of credibility of that framework and that's what really would guide our assessments here," she said.
"I think Reserve Bank has been successful so far in its move towards inflation targeting, in anchoring inflation expectations. And we assume that will continue."
Rajan's three-year term is due to expire in September and investors are hoping he will be re-appointed for another two years.
Finance Minister Jaitley recently declined to comment on the governor's reappointment.
(Reporting by Neha Dasgupta and Rajesh Kumar Singh; Editing by Rafael Nam, Robert Birsel)
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Updated Date: May 19, 2016 17:24 PM