NEW DELHI: The international rating agency, Moody's has upgraded the outlook for India's domestic currency rating from "negative'' to "stable'' owing to its perception of an improvement in the country's debt scenario.

At the same time, it has warned that the country's fiscal indicators remain at extremely high levels compared to its local currency rating peers.

In a statement issued here on Thursday, the agency said the primary reason for improvement in debt ratios after many years of deterioration was the combination of robust nominal GDP growth and cost savings, as lower interest rates mitigated the costs of servicing higher debt. It notes that the outlook on the "Baa3'' country ceiling for foreign currency debt, the "Ba2'' country ceiling for foreign currency bank deposits and the government's foreign currency issuer rating remained stable. The agency also highlighted some recent policy measures that contributed to the fiscal improvement including an expansion of the tax net accomplished through various reforms over more than a decade.

The release has described the implementation of the value-added tax (VAT) in nearly all of the States and Union territories as having boosted expectations of a significant narrowing of the states' consolidated fiscal deficit starting as early as in the fiscal year ended March 2006.

Referring to the political scenario in the country, the agency has noted that issues related to coalition politics would continue to present challenges for fiscal consolidation as well as progress on structural economic reform.

It felt that the country's key decision makers have increasingly recognised the need for a reduced public debt burden and a favourable environment for private investment for the necessary fiscal flexibility.

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