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Moody's may upgrade India's credit ratings

Moody's Investors Service said on Thursday that it has placed the credit ratings of India on review for a possible upgrade.

India's Ba2 foreign currency country ceiling for debt and Ba3 foreign currency country ceiling for bank deposits are on review. "The review is primarily based on the substantial strengthening of the country's external financial situation," Moody's said in a statement.

"The foreign currency issuer rating for the Republic of India -- the proxy for the rating that would likely be assigned were the government to issue a foreign currency-denominated bond in the international capital markets -- has also been placed on review for possible upgrade."

At present, however, the government has no such bonds outstanding nor are there any rated government-guaranteed eurobonds outstanding, Moody's said.

But the Ba2 domestic currency bond rating of the government is not on review and the outlook on that rating remains negative due to continuing stress in India's internal finances and last year's broad-based reduction in import tariffs.

The current account has moved into a small surplus, thanks to good performance of both merchandise and service exports and surprisingly stable inflows of worker remittances from Indian workers who live abroad.

In addition, the central bank's foreign exchange assets have climbed rapidly, external debt and debt service ratios have declined to manageable levels, and short-term debt is negligible.

Moody's said that its ongoing analysis of India is focused on whether the fiscal problems facing the government could spill over into a balance of payments crisis, a linkage that would limit the differential between the foreign and domestic currency ratings.

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