In the backdrop of record foreign exchange reserve in India’s kitty, there is one more good news that may strengthen the hands of prime minister Narendra Modi when he visits Europe this month.  India’s credit rating outlook has been raised to positive by Moody’s Investors Service on Thursday. The country’s Baa3 rating was affirmed and the outlook was revised from stable.

It said there was an increasing probability that actions by policy makers will enhance the country's economic strength and, in turn, the sovereign's financial strength over coming years. Moody's said it expected structural advantages, supported by relatively benign global commodity prices and liquidity conditions, will keep India's growth higher than that of its peers over the rating horizon.

The ratings agency had improved the country's sovereign credit rating outlook from negative to stable in September last year indicating the possibility of a rating upgrade.  And Thursday’s positive outlook signals global optimism in the efforts of Modi and Reserve Bank of India governor Raghuram Rajan to improve Asia’s No. 3 economy.

Moody's has changed rating outlook to positive from stable & affirms Baa3 rating The upgrade in outlook is significant but we've to do more

— Arun Jaitley (@arunjaitley) April 9, 2015

Policy makers are putting in place the right measures to address inflation and increase investment, Moody’s said.

“Recent measures to address inflation, keep external balances in check, simplify the regulatory regime for investors, increase foreign direct investment, and facilitate infrastructure development will reduce some of India’s sovereign credit constraints,” Moody’s said. “The ability of policy makers to strengthen India’s sovereign credit profile to a level consistent with a higher rating will become apparent over the next 12-18 months.”

“The Baa3 rating incorporates the risk that higher levels of growth and infrastructure development will be accompanied by higher leverage,” it said. “Sovereign credit improvements over the next 12-18 months will depend on the extent to which growth, policies and buffers can contain the risks associated with rising leverage.”

Meanwhile, forex reserves increased by more than $1 billion in the week ended March 27 to $341.4 billion, according to data released by RBI. The reserves are closing the financial year at a record high, having breached the previous record of $320 billion in February this year.

In 2014-15, foreign institutional investors (FIIs) invested $44.83 billion in equity and debt. Of this, $17.89 billion was invested in equity and $26.93 billion in debt. FII investment rose more than four-and-a-half times compared with $9.76 billion in 2013-14.