The two countries also signed a maritime security agreement after extensive talks between Prime Minister Narendra Modi and his Mauritian counterpart Pravind Jugnauth.
In a statement, PM Modi said he and Mr Jugnauth agreed that effective management of conventional and non-conventional threats in the Indian Ocean is essential to pursue economic opportunities.
The bilateral maritime accord will strengthen mutual cooperation and capacities, he said.
A total of four agreements were signed after the talks between the two leaders.
"The agreement today on the USD 500 million line of credit to Mauritius is a good example of our strong and continuing commitment to the development of Mauritius," the Prime Minister said.
The two countries also decided to ramp up cooperation in a number of areas including trade and investment.
"India is proud to participate actively in the ongoing development activities in Mauritius," PM Modi said.