International rating agency Moody’s on Wednesday maintained India’s sovereign ratings of Baa3 with a positive outlook, but said the reform measures till now have not created enough of an impact on economic growth and the fisc to support an update.

“The reform effort to date has not yet achieved the conditions that would support an upgrade to Baa2, in particular in accelerating private investment to support high, stable growth, without which the government’s debt burden — a key constraint on the rating — is likely to remain high for a sustained period,” it said.

The agency also noted that India continues to display a number of features which constrain the credit rating including low per capita income, a high government debt burden and a low tax revenue base.

“We would consider an upgrade upon evidence that institutional strengthening will elicit sustained macro-economic stability, higher levels of investment and more favourable fiscal dynamics,” Moody’s said.

It added that these measures could include land or labour reforms by a significant number of States, the establishment of a credible and effective fiscal framework along with measures to cut spending or increase revenue, tangible progress in the implementation of the Insolvency Code and a workable strategy to cut banks’ bad assets over the medium term.

While noting that the likelihood of a rating downgrade is very low, it said that this could still happen if fiscal and institutional strengthening appeared unlikely, or banking system metrics remained weak or balance of payments risks rose.

Moody’s however, praised government policies in moderating inflation and limiting current account deficits. It further said that policy reforms such as the goods and services tax (GST), Insolvency Code and improvement in ease of doing business could lead to higher investment and more efficient savings.

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