Moody's on Friday upgraded India's credit rating for the first time in more than a decade, citing economic reforms introduced under Indian Prime Minister Narendra Modi.

The move comes almost two months after the Moody's and Standard & Poor's lowered their ratings on regional rival China citing the country's ballooning debt burden.

Moody's raised its rating on India to Baa2 from Baa3, the first such move since January 2004, saying recent reforms would enhance productivity, stimulate foreign and domestic investment and foster “strong and sustainable growth”.

These include a new national goods and services tax and a controversial 2016 ban on high-value bank notes aimed at tackling widespread tax evasion.

“Continued progress on economic and institutional reforms will, over time, enhance India's high growth potential,” the agency said.

Modi swept to power in 2014 on a promise to reform India's economy and create jobs for a burgeoning youth population.

But critics point out that joblessness remains high and the reforms have not come without pain.

They have acted as a drag on growth, which hit a three year low of 5.7 per cent in the first quarter of the current financial year.

Indian Finance Minister Arun Jaitley called the upgrade “a belated recognition of all the positive steps which have been taken in India in the last few years”.

“It's extremely encouraging that there's an international recognition and it merely furthers our determination to follow the track which we have embarked upon,” Jaitley told reporters.

The move boosted Indian stocks more than 1pc, while the rupee strengthened to 64.86 against the dollar, from Thursday's 65.29.