India's fiscal deficit and inflation outlook could prevent any upgrades in the country's sovereign rating, even as the economy is headed for recovery, Moody's Investors Service said on Wednesday.
Although Moody's expects the government to meet the fiscal deficit target of 4.1 per cent for the fiscal year ending in March, it noted the country's finances would "remain vulnerable to future cyclical downturns and external shocks."
Meanwhile, Moody's also said India's ratings were constrained by inflation, reiterating comments also made last week.
"We forecast India's fiscal, inflation and infrastructure metrics to remain weaker than the median for similarly rated peers," Moody's said in a report dated Wednesday.
"While stronger growth in this large and diverse economy will help to counterbalance these credit challenges, they limit further upward momentum in the sovereign rating."
The credit agency rates India at "Baa3", the lowest investment-grade rating, with a "stable" outlook.