Moody's Investors Service has upgraded India's local currency government bond rating to "Ba1" from "Ba2" on the government taking specific steps to improve financial strength, fiscal credibility, and economic resilience.

Moody's has also affirmed India's Baa3 foreign currency government bond rating, narrowing the gap between the local and foreign currency ratings to one notch.

The outlook on the local currency rating remains positive, while the outlook on the foreign currency sovereign rating remains stable.

Dwelling on factors driving upward revision in local currency bond rating, Moody's said a broad range of institutional and structural reforms whose deepening, over time, will result in gradual improvements in the financial strength, support fiscal credibility, and improve economic resiliency.

There is absence of any heightened recourse to non-market measures for financing the government's large stimulus program, which could otherwise have carried credibility costs.

The Indian economy has shown resilience throughout the global recession, rating agency said. The weakening of the structural and policy reasons that could still allow the government to prioritize its external obligations over its domestic obligations, it added.