India’s credit rating has remained unchanged since June 2007, which is the lowest investment grade rating, only a grade above the ‘junk’ status for sovereign bonds . It’s about time rating agencies woke up to the new reality in India.Rating agencies rate sovereign bonds on the basis of lending risks, which essentially boils down to estimating the borrowers’ ability to repay its debt, and the likelihood of them defaulting. India’s ratings have remained stuck at the BBB- level, despite the country witnessing substantial improvement in growth and macroeconomic stability in last 10 years.Rating agencies normally look at such parameters as FDI inflows, debt-to-GDP ratio and per capita income of nations under rating, with the debt-to- GDP ratio being the most important.FDI inflows into the country have been rising constantly. In 2016-17, we received the highest FDI on record at $46,800 million, higher than $45,148 million inflow witnessed in 2014.A crucial parameter – the debt-to-GDP ratio – is improving, with a decline in debt as a percentage of GDP. The central government has adopted a course of fiscal prudence, but states have to show more discipline. Even then, the debt-to-GDP ratio, which was at 68.49 per cent in 2016, is likely to fall to 67.21 per cent in 2017, according to IMF estimates. By 2018, it should decline further to 65.56 per cent. By 2023, it is expected to come down to 60 per cent.The per capita income has risen 9 per cent from $1,576 in 2014 to $1,719 in last financial year. IMF expects the per-capita GDP figure to touch $2611 by 2021.India is not getting a fair deal from the rating agencies.Consider this: Spain has a BBB+ rating with a debt-to-GDP ratio of 101 per cent. Italy, with a debt-to- GDP ratio of 133 per cent, almost double than that of India, has the same rating. These ratings are all the more glaring, when you consider their worsening demographics. In the case of Italy, political fluidity was responsible for the nation experiencing a loss. Italy has seen 12 prime ministers in last five years.One of the reasons behind their favourable ratings, despite risky debt-to-GDP ratios was the currency.But with Brexit becoming a reality, and the French elections being fought with an EU-exit agenda, this advantage may soon be lost.The IMF expects China to grow at 6.5 per cent in calendar year 2017, and at a slower 6 per cent in 2018. India, on the other hand, is expected to grow 7.2 per cent in CY2017 and 7.70 per cent in 2018, making India the logical place to seek growth. This is going to attract more FDI and portfolio investments.Portfolio investors are early movers. By the time rating agencies put the stamp of approval on the improving economy, they would have made their money.A weak rupee has always been the nemesis of FIIs. But with the rupee regaining strength, FIIs are pumping in more money. In the first quarter of this calendar, the Nifty50 is up 12.07 per cent. But in dollar terms, the returns are 17.45 per cent.FIIs have never had it so good in five years. In fact this is the highest return in 20 quarters, courtesy the rupee, which appreciated 4.5 per cent during the quarter.The Organisation for Economic Co-operation and Development has thrown its weight behind India, and says the country is worthy of a credit rating upgrade. India’s superior demographics, Aadhaar-based income-tax collection and subsidy transfer, political stability, stable crude prices and a strengthening rupee will force rating agencies to re-rate India, sooner than expected.They are probably waiting to see how the GST rolls out. If this goes smoothly, rating agencies will, in all likelihood, upgrade India by March 2018, if not earlier.