A Comprehensive Look at India's External Debt Landscape

What is External Debt and How Much is India’s Now?

External debt refers to the financial obligations that India has towards foreign lenders. This encompasses government borrowings, loans taken by companies, and deposits from international sources. As of the end of March 2025, India's external debt is reported to be $736.3 billion, which constitutes 19.1% of the country's GDP. This figure has increased from 18.5% in the previous year.

Why Did External Debt Increase This Year?

There are two primary factors contributing to this year's rise in external debt:

• A genuine increase in borrowings, estimated at about $72.9 billion.
• A valuation effect resulting from the appreciation of the US dollar, which added approximately $5.3 billion to the overall debt.

What is Meant by the Valuation Effect?

The valuation effect occurs when the US dollar gains strength against the Indian rupee, making the same loan amount in dollars appear more expensive in rupee terms. For instance, if India owes $1 billion when the dollar is valued at ₹75, the debt would be ₹75 billion. However, if the dollar appreciates to ₹83, the same debt would now be ₹83 billion, despite no new loans being taken. This difference is what we refer to as the valuation effect.

How Much of the Debt is Long-Term vs Short-Term?

• Long-term debt (maturity > 1 year): $601.9 billion.
• Short-term debt (maturity ≤ 1 year): The proportion of short-term debt in total debt has decreased to 18.3%, whereas its share in foreign exchange reserves has increased to 20.1%, up from 19.7%.

What Currencies Is India’s External Debt Mostly In?

• US Dollar: 54.2%
• Indian Rupee: 31.1%
• Japanese Yen: 6.2%
• Special Drawing Rights (SDRs): 4.6%
• Euro: 3.2%

What Types of Borrowings Make Up This Debt?

• Loans: 34%
• Currency and deposits: 22.8%
• Trade credit and advances: 17.8%
• Debt securities (bonds): 17.7%

Should We Worry About This Increase?

A rise to 19.1% of GDP is generally manageable, provided that:

• The debt is utilized for productive purposes.
• Foreign exchange reserves remain robust.
• The cost of debt servicing, including interest payments, is sustainable.