"Official foreign reserves have expanded especially rapidly during the past year as increased merchandise exports, dynamic sales of information technology services, and large workers' remittances helped move the current account into surplus while capital inflows also mounted," Moody's said.

"Moody's expects that the factors bolstering India's external liquidity are likely to be sustained over the next two to three years," the agency said.

The issuer ceiling, the proxy for the rating that would likely be assigned were the government to sell a foreign currency-denominated bond in the international capital markets, was also raised to Ba1.

However Moody's said concern about the poor state of India's public finances continues to warrant a negative outlook on the government's Ba2 domestic currency rating.

It upgraded India's country ceiling for foreign currency bank deposits to Ba2 from Ba3, unifying it with the government's Ba2 domestic currency debt rating, which was not on review and was affirmed with a negative outlook.

"The upgraded Ba2 bank deposit ceiling was assigned a negative outlook because of the close linkage between the risk of a government domestic debt restructuring and the potential for restrictions on large foreign currency withdrawals from the banking system," Moody's said.