India’s external debt reached a staggering $736.3 billion by the end of March 2025, up 10% from $668.8 billion a year ago, according to data released by the Reserve Bank of India (RBI). While the increase may seem manageable in isolation, the numbers merit closer scrutiny—particularly in the context of a volatile global economy, rupee depreciation, and the country’s mounting macroeconomic obligations. As a percentage of GDP, India’s external debt has risen to 19.1%, compared to 18.5% last year. This incremental rise may not immediately signal distress, but it underscores a trend that could pose risks if not closely monitored. While the country’s debt-to-GDP ratio remains within a tolerable range by international standards, the pace of growth demands that policymakers take a harder look at the nature and structure of this borrowing. The RBI attributed a part of the rise—about $5.3 billion—to valuation effects resulting from the strengthening of the US dollar against the rupee and other currencies. Stripping away this valuation effect, the debt would have increased by $72.9 billion—an even more significant figure. This reflects not just currency fluctuations, but also India’s increasing reliance on external capital to finance domestic needs.
One of the more concerning developments is the rise in long-term debt, which stood at $601.9 billion, up $60.6 billion from the previous year. While long-term debt is generally considered more stable and less prone to immediate risk, its sustained increase also implies a growing dependency on long-horizon financing, which could constrain future fiscal flexibility. With a global slowdown looming and interest rates globally staying elevated, the cost of rolling over or servicing such debt may rise, especially if the rupee continues to be under pressure. Interestingly, the share of short-term debt in total external debt has declined slightly—from 19.1% to 18.3%— but the short-term debt to foreign exchange reserves ratio has crept up to 20.1% from 19.7%. This suggests that while India has managed to restructure some obligations, it still faces vulnerabilities in terms of liquidity. Short-term debt represents a potential flashpoint in times of crisis, as it requires quick repayment or refinancing. Even a minor disruption in global financial markets could trigger outsized consequences, especially in the absence of robust reserve buffers. Another angle that demands attention is the composition of the debt. Dollar-denominated debt remains dominant at 54.2%, followed by rupee-denominated debt at 31.1%. This imbalance makes India highly susceptible to dollar strength, which we have seen recently amid geopolitical tensions and rate hikes by the US Federal Reserve. While the rupee’s relative stability and India’s prudent fiscal management have so far prevented a crisis, over-dependence on dollar borrowings carries inherent risk.
The breakdown of borrowers paints a clearer picture: non-financial corporations hold $261.7 billion in debt, the government $168.4 billion, and deposit-taking corporations $202.1 billion (excluding the RBI). This distribution suggests that Indian companies are borrowing heavily to meet capital needs, possibly due to constrained domestic credit markets or the allure of cheaper global capital. The government’s share, though smaller, cannot be ignored, especially considering its broader fiscal commitments, including subsidies, infrastructure spending, and social welfare schemes. It is also noteworthy that loans form the largest chunk of external debt (34%), followed by currency and deposits (22.8%), trade credit and advances (17.8%), and debt securities (17.7%). This structure indicates a heavy reliance on traditional debt instruments, but also opens the door for exploring newer financing options, such as green bonds or sovereign wealth fund partnerships, which may offer more favorable terms. In light of these numbers, what India needs now is a calibrated and transparent debt management strategy. First, enhancing foreign exchange reserves must be a priority. At around $645 billion currently, the reserves offer some comfort but may need bolstering given the growing debt stock and the uncertain global economic outlook. Second, greater attention must be paid to the quality of borrowings. Not all debt is equal— funds borrowed for productive capital expenditure like infrastructure or renewable energy can yield long-term growth dividends, whereas debt to finance consumption or plug fiscal deficits only amplifies liabilities without adding to national output. Third, India must deepen its domestic financial markets to reduce its dependency on external debt, particularly in the corporate sector. Expanding access to domestic credit, strengthening bond markets, and improving investor confidence can help channel more internal savings into developmental projects.
Finally, transparency and accountability in debt reporting and utilization are essential. The government and the RBI must periodically review not just the quantity, but also the quality and sustainability of India’s external liabilities. A healthy dialogue with international credit agencies and adherence to global debt standards will go a long way in maintaining investor confidence and economic resilience. India’s growing global ambition—reflected in its trade, technology, and geopolitical outreach—must be underpinned by fiscal discipline and prudent debt management. Borrowing can be a lever for progress, but only if wielded with foresight. The $736 billion figure is not inherently alarming, but it is a wake-up call: one that calls for vigilance, strategy, and sustained macroeconomic stability.