DBRS, an international sovereign credit rating agency, has raised the rating on India's long term foreign and local currency debt from negative to stable, the finance ministry said in a statement Friday.
Giving reasons for the improvement in the rating, DBRS said there was "evidence of a stronger commitment to fiscal deficit reduction in the 2011-12 budget and that the government was addressing the infrastructure deficit by spending $514 billion, or 9 percent of gross domestic product (GDP), on infrastructure between 2007-2012".
The government plans to increase the infrastructure spending to $1 trillion during 2013-2017 of which about half may come from the private sector.
Among other reasons given by DBRS for the ratings upgrade was the possibility of the new direct tax code contributing to improved tax efficiency and the unique identification number improving labour market formality, raising tax compliance and streamlining subsidies and social security expenditures.
"It has recognised that India has adopted a more responsible medium-term fiscal policy and commitment to debt reduction which bodes well for the ratings," said the ministry's statement.
DBRS's ratings upgrade follows the release of ratings by Fitch Ratings earlier this week. Though Fitch maintained its ratings at the same level as issued on June 2010, it has appreciated the management of the economy by Indian policymakers.
While reviewing ratings for this year, Fitch said that India had solid external finances, as highlighted by a modest external debt service ratio and a robust external liquidity ratio. Also, the country's foreign exchange reserves were large at $313.5 billion as of May-end 2011.
"The widening in India's current account deficit, to an estimated 2.6 percent of GDP in 2010-11, is not a significant risk in light of India's current stage of economic development,” Fitch said in its report.
India's sovereign debt is rated by six international sovereign credit rating agencies (SCRAs): Standard and Poor's, Moody's Investor Services, DBRS, Fitch Ratings, Japanese Credit Rating Agency and Rating and Investment Information.
These agencies normally visit the Ministry of Finance and Reserve Bank of India before making their assessment. The government has begun a structured interaction process with these SCRAs.