Mumbai: Global rating agency Moody's on February 3 upgraded India's foreign currency debt and projected a stable outlook, but cautioned about the deteriorating fiscal situation limiting faster growth prospects.

The international rating agency also upgraded the ceiling on foreign currency debt to "Ba1" from "Ba2" and that for 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 principle reason for upgrading India's foreign currency rating was the substantial improvement in the country's liquidity position," Moody's said, adding the country's foreign exchange reserves expanded mainly due to buoyant exports, dynamic IT service sale and large remittances, which resulted in current account surplus.

Moody's in a statement said the factors bolstering India's external liquidity, including direct and portfolio investment, are likely to be sustained in the next 2-3 years.

Hailing the upgrade, awaited since November, a Finance Ministry spokesperson said, "this only confirms what we have been saying that the economic fundamentals were strong and that India was managing its economy well."

Moody's, however, cautioned about the poor state of public finances warranting a negative outlook on the government's "Ba2" to domestic currency debt rating.

"Relying on growth of NRI inflow while failing to address the deteriorating fiscal situation increases the external position's vulnerability to negative confidence shifts, even with limited capital account convertibility," it said.

PTI