Moody's Investors Service on Thursday released its latest edition of Inside India, saying that India's continued progress on economic and institutional reforms will, over time, enhance the country's high growth potential and its large and stable financing base for government debt.

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The quarterly publication that examines the major credit trends in India, through recently published Moody's reports, provides a detailed explanation of the drivers behind Moody's upgrade of India's sovereign rating, as well as the implications of the upgrade for Indian banks and non-financial corporates.

Moody's says that it upgraded the Indian sovereign rating to Baa2 from Baa3 and revised the rating outlook to stable from positive because of its expectation that the country's continued progress on economic and institutional reforms will, over time, enhance India's high growth potential and its large and stable financing base for government debt.

"Specifically, recent reforms offer greater confidence that the high level of public indebtedness — one of India's principal credit weaknesses — will remain stable, even in the event of shocks, and will ultimately decline," said the global agency report.

Examining India's major airports, Moody's Inside India said, "they are seeing a strong rise in passenger traffic, which has recorded two years of 20%-plus growth -- a credit positive, although the regulatory landscape remains a challenge. The main drivers of passenger volume growth include a rising middle class, lower air ticket prices and improving regional connectivity."

It also discusses the Indian insurance industry, and concludes that "insurers in the country are well positioned to benefit from strong domestic economic growth."

The Inside India report further says, "In particular, regulations introduced since 2015 have facilitated the access of the insurers to capital and reinsurance cover, while encouraging them to improve the quality of their investment assets and reserve adequacy. These developments will gradually allow the insurers to reap greater benefits from India's strong economic expansion and to increase the take-up of insurance from current low levels."

On Oil and Natural Gas Corporation Ltd's (ONGC, Baa1 stable) planned acquisition of a majority stake in Hindustan Petroleum Corporation Ltd. (HPCL, Baa2 stable), Moody's says "if the transaction goes through, it will cause ONGC's leverage to approach the upper limit of its Baa1 rating."

"ONGC's strategic importance to the Indian government will also increase, given that the merger would create the country's first integrated oil & gas company with significant upstream and downstream operations," the report added.