Moody's Investor Services lifted the Government of India's local and foreign currency debt ratings to Baa2 from Baa3, saying continued progress on economic and institutional reforms will enhance India's high growth potential.
The rating agency said that the reforms will improve the business climate in the country and raise productivity.
Moody's also changed its rating outlook to stable from positive, saying that at the Baa2 level the risks to India's credit profile were broadly balanced.
Moody's said the recently-introduced goods and services tax (GST), a landmark reform that turned India's 29 states into a single customs union for the first time, will promote productivity by removing barriers to interstate trade.
"In the meantime, while India's high debt burden remains a constraint on the country's credit profile, Moody's believes that the reforms put in place have reduced the risk of a sharp increase in debt, even in potential downside scenarios," the ratings agency said in a statement.
Moody's expects India's real GDP growth to moderate to 6.7 percent in the fiscal year ending in March 2018 from 7.1 percent a year earlier.
Moody's also raised India's local currency senior unsecured debt rating to Baa2 from Baa3 and its short-term local currency rating to P-2 from P-3.
The government of Prime Minister Narendra Modi eased tax requirements last month for small- and medium-sized companies in response to growing criticism of its economic stewardship.