India's External Debt Rises to $736.3 Billion: A Closer Look

India's external debt rose to $736.3 billion (19.1% of GDP) by March 2025 from $668.8 billion (18.5% of GDP) a year earlier. The increase was partly driven by a $5.3 billion valuation effect due to the US dollar's appreciation. Long-term debt grew to $601.9 billion, while short-term debt's share declined to 18.3%. US dollar-denominated debt dominated at 54.2%, followed by the rupee at 31.1%. Loans accounted for 34% of debt, highlighting the need for prudent management of liabilities.

India's external debt has seen a noticeable rise, reaching $736.3 billion by the end of March 2025, which equates to 19.1% of the country's gross domestic product (GDP). This marks an increase from $668.8 billion, or 18.5% of GDP, recorded at the same time in March 2024. The Reserve Bank of India (RBI) has shed light on the factors contributing to this growth, including currency valuation shifts and broader economic changes.

Currency Valuation Impact

One of the noteworthy contributors to the debt increase was the impact of the US dollar's appreciation against the Indian rupee and other currencies. This valuation effect alone accounted for $5.3 billion. Without this currency valuation factor, the rise in external debt would have been even steeper, amounting to $72.9 billion instead of the reported $67.5 billion increase over the previous year.

Long-Term Debt Trends

Long-term debt, defined as liabilities with an original maturity period exceeding one year, formed the bulk of the external debt. By the end of March 2025, this segment stood at $601.9 billion, reflecting a significant year-over-year increase of $60.6 billion. This steady rise underscores the growing reliance on long-term financing for economic activities and development projects.

Short-Term Debt Developments

On the other hand, the share of short-term debt, with original maturities of up to one year, saw a relative decline. It accounted for 18.3% of the total external debt in March 2025, compared to 19.1% a year earlier. However, when measured against the nation's foreign exchange reserves, the ratio of short-term debt rose slightly, climbing to 20.1% from 19.7%. This uptick suggests a marginal increase in short-term obligations relative to the reserve buffer.

Debt Composition by Currency

The US dollar continues to dominate India's external debt portfolio, representing 54.2% of the total as of March 2025. Following the dollar, the Indian rupee-denominated debt accounted for 31.1%, with other contributors including the Japanese yen (6.2%), Special Drawing Rights (4.6%), and the euro (3.2%). This composition highlights the country's reliance on dollar-denominated liabilities while maintaining a diversified currency mix.

Debt Distribution by Instrument

When categorized by financial instruments, loans emerged as the largest component of India's external debt, making up 34% of the total. This was followed by currency and deposits at 22.8%, trade credit and advances at 17.8%, and debt securities at 17.7%. The prevalence of loans underscores their critical role in funding various sectors of the economy.

India's external debt trajectory reflects a combination of global economic factors, currency valuation shifts, and domestic borrowing trends. While the overall increase in debt signals growing financial obligations, the relative decline in short-term debt and the diversified currency composition provide some balance. As India continues to navigate its economic growth path, careful management of external liabilities will remain crucial to maintaining financial stability.