"Growth prospects have improved with a new finance minister, the withdrawal of an obstinate coalition partner and a flurry of pro-business reforms designed to lift the economy from its funk. These moves are working," Moody's said in a report.
The government has been able to push through economic reforms, especially allowing foreign investment in multi-brand retail, after withdrawal of support by Trinamool Congress.
The government had also expressed its commitment to raise FDI cap in the insurance sector. This would require approval of Parliament.
Noting that "policy missteps and political paralysis" crushed business confidence and investment in 2012,
the Moody's report said, "India should... enjoy a better 2013, though for different reasons."
The report said Asia's economies have weathered the global downturn and will enter 2013 in comparatively good shape. Risk levels appear manageable, domestic policy settings remain highly accommodative, and the global outlook has begun to stabilize.
P Chidambaram took over the finance portfolio in August when the then Finance Minister Pranab Mukherjee became the Presidential candidate. Mukherjee was later elected as President.
The rating agency further said that near-term risks around India's fiscal and external deficits have receded.
"Business groups are more upbeat; this will translate into better investment and GDP growth, but not until well into 2013. The moves help to lock in our longer-term outlook," the it said.