Standard & Poor’s upgrade of India ’s credit outlook is good news but not dramatic, said, a noted economist and former chairman ofIn an interview withwho coined the acronym BRIC in 2001 to describe Brazil, Russia, India and China, said India is relatively in the early stages of getting re-rated but it all depends on Narendra Modi to deliver to match the increased optimism of foreign investors. Edited excerpts:One has to see whether the rating agency’s action is following the market, leading the market, or coinciding with the market. Indian markets in particular have performed very well in the last four months since Modi was elected as the prime minister. Obviously, the markets have already become optimistic about India. I don’t think the S&P outlook upgrade is dramatic news, but it’s definitely good news.The US monetary policy is crucial for global markets. Investors are starting to worry about the interest rate hike by the US Federal Reserve.The event will be negative for global markets — whether it’s developing markets or developed markets — and India cannot do anything about it.Hence, India should concentrate on the macros over which it has control, and not get worried about what is happening in the US or elsewhere.Having said that India this time is better prepared than 18 months ago, when the tapering of QE programme was announced.Investors are getting a bit worried about the monetary tightening by the US Federal Reserve. People are anticipating more volatile markets, going ahead, and here India cannot do anything about it.Markets never move in a straight line and that’s the reality. The Sensex is up about 26% year to date and things don’t move in the same direction every week. Though more volatility in Indian markets will surprise me, people should not be thinking that this is the end of the Indian market rally. India is relatively in the early stages of getting re-rated, but it all depends on Modi to deliver on increased optimism of foreign investors.I am not really concerned about valuations. It’s quite possible that Indian analysts may not be upgrading before the earnings. As I have said if the broad virtuous cycle continues, where the rating agencies get more happy, the business people get more happy, and Modi takes further economic reforms, then the GDP in the second half of this decade will easily be around 7.5% or more. And if this happens, then the consensus earnings forecast will get revised upwards.I think Modi has done a pretty good job so far, based on the intentions of the government. I would like to see the execution of minimum government and maximum governance. I would like to see the reduction in dominance of bureaucracy. I would like to say here for all the things which the government has started, without better governance nothing can be achieved.Though there are many things which need to be adjusted as people are more optimistic about the new government. There is a need to make strong macroeconomic policy framework, a lot of work has to been done to bring energy efficiency, environmental efficiency. Many restrictions on FDI have to be removed.The easing commodity prices in one way offset to some degree the US Fed’s monetary tightening policy. The easing commodity prices also help in bringing down inflation and this makes easier for India to tackle some of its marco challenges.It depends on the virtuous cycle. If the commodity prices continue to soften, going forward, then it will be extremely helpful in reducing Indian inflation. It’s important that India’s central bank gets greater independence and makes sure that low inflation becomes part of India’s culture. I don’t think there is a need to rush for lowering interest rates. If the virtuous cycle continues than India would definitely benefit from lower interest rates.Among the major risks to Indian markets, the biggest would be if Modi fails to deliver what he has promised, and second is the possible interest rate hike in the US which is going to impact everybody including India. Apart from these, I don’t see any major risks to India.