India’s external debt position remains comfortable. At the end of March 2025, it stood at USD 736.3 billion, growing by 10.1 per cent (USD 67.5 billion) over the level a year ago. The external debt to GDP ratio was 19.1 per cent, while foreign exchange reserves to external debt ratio stood at 90.8 per cent as at end-March 2025. The Sovereign External Debt (SED), accounting for about 23 per cent of the total external debt, increased by 13.3 per cent to USD 168.4 billion at end-March 2025 from USD 148.7 billion at end-March 2024. Non-sovereign external debt, which accounts for the remaining 77 per cent of the total external debt, grew by 9.2 per cent to USD 567.9 at the end of March 2025. In terms of maturity, the long-term external debt constituted 81.7 per cent of the total, while the remaining 18.3 per cent was of short-term maturity. Within short-term debt, trade credit for financing imports accounted for 96.8 per cent of the total short-term debt, underscoring the stability aspect of the debt.

External Debt and Valuation Effect (at end-March)

The valuation effect captures the impact of changes in value of US dollar vis-à-vis major currencies on the US dollar value of India’s external debt. There were valuation gains of USD 5.3 billion in external debt due to the appreciation of the US dollar relative to the Indian rupee and other major currencies such as Yen, the Euro and Special Drawing Rights (SDR). Without considering the valuation effect, India’s external debt would have increased by USD 72.9 billion instead of USD 67.5 billion at the end-March 2025 over its level at the end- March 2024

India’s External Debt and Debt to GDP ratio (at end-March)

Debt sustainability can be assessed on the basis of indicators of the debt stock or debt service relative to various measures of repayment capacity. Debt-to-GDP ratio (defined as the ratio of the total outstanding external debt at the end of the year to annual GDP for that year) provides some indication of the potential to service external debt by switching resources from production of domestic goods to the production of exports. At end-March 2025, the external debt to GDP ratio rose to 19.1 per cent from 18.5 per cent at end-March 2024.

Foreign Exchange Reserves to External Debt (at end-March)

Foreign exchange reserves are maintained by countries both for financing international transactions and for facing unforeseen international payment difficulties. In FY 2025, India’s foreign exchange reserve rose to USD 668.3 billion covering 90.8 per cent of the total external debt of the country, lower than 96.7 per cent a year ago. The ratio of short-term external debt to foreign exchange increased marginally to 20.1 per cent at end-March 2025 from its level of 19.7 per cent at end-March 2024

Commercial Borrowings: Component-wise (at end-March)

At end-March 2025, commercial borrowings increased by 16.4 per cent to USD 291.6 billion from their level a year ago. The main drivers for increased commercial borrowings were an increase in FPI in debt instruments (26.6 per cent), commercial loans (20.7 per cent) and bank’s overseas borrowings (9.5 per cent). On the other hand, commercial borrowings raised through the issue of securities/bonds declined by 1.7 per cent during the period

Share of foreign currency debt in total external debt (%)

Foreign currency debt is defined as debt in which the value of flows and positions is fixed in a currency other than the domestic currency. Exchange rate fluctuations can increase or decrease borrowing costs, impacting the value of foreign-currency-denominated debt obligations. US dollar denominated debt remained the largest component of India’s external debt, with a share of 54.2 per cent at the end of March 2025. The Indian Rupee has been gaining in prominence in recent years, reflecting an increase in FPI in debt instruments and balance under NRE accounts. Indian Rupee external debt occupied second place after US Dollar external debt at end-March 2025, and the share of Indian Rupee External Debt stayed at a similar level at 31.3 per cent in total external debt from 31.5 per cent a year ago

India’s External Debt Service Payments

India’s gross external debt service payments were higher at USD 67.4 billion in 2024-25 than USD 63.2 billion during the previous year, recording an increase of 6.6 per cent. Of the total debt service payments during the year, principal repayments increased to USD 37.1 billion from USD 36.2 billion a year ago, while interest payments increased to USD 30.3 billion from USD 27 billion. Principal repayment accounted for 55.1 per cent of India’s total external debt service payments during the year under review, while the rest (44.9 per cent) was on account of interest payments. The increase in interest payments in 2024–25 is primarily attributable to a 15.7 per cent increase in interest payments on non-resident deposits, a 13.8 per cent rise in interest payments to official creditors and a 9.7 per cent increase in interest payments on commercial borrowings (CBs). Among the major sources of debt, CBs remained the costliest with an implicit interest rate of 6.8 per cent, followed by NRI deposits (5.9 per cent) and external assistance (3.8 per cent). The debt service ratio during 2024-25 declined marginally to 6.6 per cent from 6.7 per cent. The debt service payment obligations arising out of the stock of external debt as at end-March 2025 are projected to broadly trend downwards over the coming years. Accordingly, external debt service payments are projected to decline to USD 57.6 billion in 2025-26 and USD 49.5 billion in 2026-27.

External debt to GDP ratio of top 20 debtor countries

Among the top 20 indebted countries, the United States, United Kingdom, Ireland, Canada, Singapore, Hong Kong, Australia, and Belgium recorded an increase in their external debt position between 2023 and 2024, while the rest saw a decline. Singapore reported the highest increase in external debt, at 9.6 per cent and registered the largest rise in the ratio of external debt to GDP, up by 4.8 percentage points in 2024 over 2023

About 72.2 per cent of the total external debt stock of LMICs is covered by foreign exchange reserves in 2023. The forex reserve cover for the external debt for the top 20 debtor LMICs ranged from 8.7 per cent for Argentina to 142.5 per cent for China. After China, Thailand (115.9 per cent) had the highest reserve cover, followed by India (96.2 per cent and the Philippines (85.5 per cent). The ratio of total external debt to export of goods and services is also a good indicator of the capacity to repay. India with the ratio of 79.7 per cent is placed at 4th position after Vietnam, Thailand, and China among the top 20 debtor LMICs.

The largest borrowers at end-March 2025 were non-financial corporations, with an outstanding external debt of USD 261.7 billion. The access to foreign debt was primarily through loans, accounting for 34.0 per cent, followed by currency and deposits (22.8 per cent), trade credits (17.8 per cent) and debt securities (17.7 per cent). Commercial lenders were the largest creditors, accounting for 39.6 per cent of the total external debt outstanding at the end of March 2025, followed by NRI depositors (22.4 per cent). In terms of the denomination of external debt, the US Dollar continued to be the largest component of India’s external debt, with a share of 54.2 per cent at end-March 2025. Indian Rupee external debt occupied second place after US Dollar external debt at end-March 2025, with the share of 31.1 per cent in total external debt, followed by yen (6.2 per cent), SDR (4.6 per cent) and euro (3.2 per cent). The ratio of concessional debt in total external debt outstanding contracted to 6.9 per cent at end-March 2025 from 7.4 per cent at end-March 2024. Valuation effect due to the appreciation of the US dollar vis-à-vis the Indian rupee and other currencies amounted to USD 5.3 billion.

Excluding the valuation effect, external debt would have increased by USD 72.9 billion instead of USD 67.5 billion at end-March 2025 over end March 2024. Thus, a strong US dollar also contributed to the movements in the external debt level as of end-March 2025. Above all, the external debt vulnerability indicators continue to be benign. As of the end of March 2025, the external debt to GDP ratio was 19.1 per cent. Additionally, the foreign exchange reserves to external debt ratio stood at 90.8 per cent at the same date. The debt service payment obligations arising out of the stock of external debt as at end-March 2025 are projected to broadly trend downwards over the coming years. From a cross-country perspective, India’s external debt is modest. In terms of various debt vulnerability indicators, India’s sustainability is better than that of the Low and Middle-Income Countries (LMICs) as a group and vis-à-vis many of them individually.