The unprecedented move to demonetise “will have short- and medium-term credit implications for every sector of the economy”, said Moody’s Investors Service.

The latest edition of Moody’s Inside India focuses on the government of India's (Baa3 positive) decision to withdraw all Rs 500 and Rs 1,000 notes. It is approximately 86 percent of all banknotes in circulation by value.

Moody's Inside India also points out that Moody's affirmed India's sovereign rating at Baa3 and kept a positive outlook on the rating because the authorities have taken important steps to strengthen the country's institutions since Moody's initially applied the positive outlook in April 2015.

However, the policy effort has not delivered clear prospects of sustained, high growth and the promise of a reduction in the government's debt burden.

On the country's banks, Moody's outlook on the Indian banking system is stable through 2017, reflecting Moody's assessment that the system is moving past the worst of its asset quality down cycle.

As for the pharmaceutical industry, Moody's and its Indian affiliate, ICRA Limited, say that Indian pharmaceutical companies will continue to seek growth through the acquisition of overseas assets over the next 18-24 months, with the aim of deepening their geographic and product diversity, and further increasing their presence in developed and emerging markets.