Hong Kong– American credit rating agency Moody’s on Wednesday retained India’s outlook at ‘positive’ saying the country’s history of double-digit inflation, high government debt levels, weak infrastructure and a complex regulatory regime have constrained its credit profile.

In its report on Asia-Pacific sovereigns, Moody’s Investors Service also cautioned that a prolonged worsening in asset quality at state-run banks is the main threat to India’s sovereign credit profile and suggested the government provide for higher recapitalisation of stressed banks.

“The main threat to the sovereign credit profile would be via a significant and prolonged worsening in asset quality at state-owned banks, beyond the recognition of bad loans currently under way, that causes contingent liabilities to crystallise on the government’s balance sheet,” it said.

The report also said that implementation of the Goods and Services Tax (GST) and bridging large infrastructure deficit are a difficult task before India’s government.

Moody’s, which has given for India a credit rating at ‘Baa3’ that is just a level above their junk category, said it would consider a rating upgrade after 12-18 months, depending on improvement in macroeconomic parameters.