Global ratings agency, Moody's has said that the India's credit rating might be affected by the government's high current account deficit and external debt.

The rating agency said that the high level of deficit and foreign debt increases the Indian economy's exposure to volatile foreign financial conditions. Moody's has given a rating of Baa3 with a stable outlook to India but warned that these factors could affect its credit rating.

Moody's Investors Service noted in its new report that India's current account deficit was at 5.4 per cent of the gross domestic product in the second quarter till September, 2012 and 4.6 per cent in the first half of the current fiscal year mainly due to fuel subsidies, rise in expensive gold imports and financial policy.

The current-account deficit was recorded at the level of 4.2 per cent of GDP in the previous fiscal year, according to the report titled 'Credit Implications of India's Current Account Deterioration'. The agency also indicated that it will monitor data from the country determine India's sovereign ratings.

"In addition to monthly trade data and quarterly current account trends, we will also monitor the specific domestic developments to determine the likely direction of India's external position over the medium-term," the report said.

Moody's Investors Service said that the improvement in India's current account and external debt depends on the domestic changes as global economic growth is expected to remain modest this year.