New Delhi: Ratings agency Moody's on Tuesday upgraded the country's outlook to 'stable' from 'negative.'

The decision to change the outlook to stable reflects Moody’s view that the downside risks from negative feedback between the real economy and financial system are receding.

In other words, economic recovery is in progress and moving towards an upwards trajectory. It also signals that activity is gradually picking up in most sectors.

At the same time, the agency has affirmed India’s Baa3 sovereign rating, which is the lowest investment grade, just a notch above junk status.

"…And while risks stemming from a high debt burden and weak debt affordability remain, Moody's expects that the economic environment will allow for a gradual reduction of the general government fiscal deficit over the next few years, preventing further deterioration of the sovereign credit profile," the agency said in a statement.

Moody's had last year downgraded India's sovereign rating to 'Baa3' from 'Baa2', saying there will be challenges in implementation of policies to mitigate risks of a sustained period of low growth and deteriorating fiscal position. The outlook on the rating was then kept negative.

The agency sees country's real GDP surpassing 2019 levels during the current financial year and expects growth at 9.3 per cent during 2021-22 and at 7.9 per cent in 2022-23.

"Downside risks to growth from subsequent coronavirus infection waves are mitigated by rising vaccination rates and more selective use of restrictions on economic activity, as seen during the second wave," it said.

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Moody's affirms rating; upgrades India's outlook to ‘stable’ from ‘negative’