The American agency also said that the negative impact of the November 8 demonetisation of high-value currency on the economy was limited in size and duration.
"The ruling BJP's victory in the Uttar Pradesh state elections indicates that the government has remained politically popular despite the demonetisation exercise," the report said.
The government has pushed through major reforms like further liberalising foreign direct investment (FDI) rules in a number of key sectors, the Direct Benefit Transfer scheme for food, fertiliser and kerosene subsidies, the Goods and Services Tax (GST) and a National Bankruptcy Code.
"Together, these will help reduce inefficiencies and improve trend growth over the long run," Moody's said.
The rating agency, however, cautioned that "persistent banking sector weakness from a high proportion of delinquent loans on bank balance sheets will weigh on growth, if not resolved, by constraining credit for investment-related activity".
"Private sector investment has remained weak despite progress on reforms, suggesting that some hurdles to investment remain binding in many cases."
Moody's said the inflation rate in India has steadily declined to 3 pct as of April, owing to weaker food price inflation.
"We believe that the inflation rate will rise to around 5 pct by the end of this year, once the effect of this temporary factor fades," it said.
With the Reserve Bank of India's monetary policy review due next week, Moody's expects the RBI to maintain status quo on its key interest rate, given the central bank's recent shift in policy stance to "neutral".
Earlier this week, the World Bank estimated that India's GDP in the current fiscal would grow at 7.2 pct. For 2016-17, the multilateral lender expected the country's growth to register a fall to below 7 pct.
In its earlier projection of GDP growth for the last fiscal, the Indian Central Statistics Office (CSO) has said the economy will grow at 7.1 pct. During the third quarter ended December, India's GDP grew at 7 pct.
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India Will Grow At 7.2 Pct In 2017-18, Says World Bank