Ratings agency Moody's on Wednesday raised India's local currency debt rating by one notch to Baa3, matching it with the country's foreign currency bond grade.
With the upgrade, India's local currency bonds have now become investment grade. Baa3 rating is the lowest investment grade.
The local currency ratings upgrade assume significance as the rupee had depreciated by almost 20 percent against dollar in the last four months. Rupee is the worst performing currency in Asia.
Moody's has unified India's local and foreign currency bond ratings keeping a stable outlook for the economy.
Moody's said it does not now see "justification for a rating bias in favour of either local currency or foreign currency government debt".
"Today's rating action was in accordance with Moody's Ratings Implementation Guidance that Moody's will maintain a gap between a government's domestic and foreign currency debt ratings infrequently and only in compelling cases," Moody's said in a statement.
India's Baa3 rating incorporates credit strengths such as a large, diversified economy, robust medium-term growth prospects and a strong domestic savings pool that facilitates the financing and refinancing of the government's relatively high debt burden.
It also encompasses credit challenges such as wide and persistent fiscal deficits, a policy process often hamstrung by domestic politics, susceptibility to inflationary pressures, and the limitations that poor social and physical infrastructure place on growth, the US-based Moody's said.
Moody's said the downward pressure on India's economic growth will persist for the next two quarters.