India’s external debt surged 10% to $736.3 billion by the end of FY25, up from $668.8 billion in the previous year. The debt-to-GDP ratio increased modestly to 19.1% from 18.5%—as per data released by the Reserve Bank of India.
What’s Driving the Rise?
- Commercial Borrowings Lead the Surge: The sharp increase was primarily due to a record $41.2 billion jump in commercial borrowings, supplemented by inflows from NRI deposits ($12.8 billion), short-term debt, and bilateral and multilateral commitments.
- Valuation Effects: The USD’s strengthening added roughly $5.3 billion to the external debt via valuation, keeping overall growth just below $73 billion.
External Debt and Forex Reserves: A Balanced View
- Growing Forex Buffer: At the end of Q1 FY26, forex reserves covered about 90.8% of the external debt—a marginal improvement from 88.5% in Q4 FY25.
- Shift in Debt Composition: While total external debt rose, the share of short-term debt dropped to a four-year low of 18.3%, although its absolute value did increase.
Implications for the Economy
| Metric | FY24 | FY25 |
|---|---|---|
| External debt (USD billion) | $668.8 billion | $736.3 billion |
| Debt-to-GDP ratio | 18.5% | 19.1% |
| Forex reserves coverage | ~88.5% | ~90.8% |
| Long-term debt proportion | — | Higher share |
| Increase in short-term debt | — | Increased in absolute terms |
| Debt service ratio | ~6.7% | ~6.6% |
India’s external debt remained largely sustainable due to healthy reserves, a low debt-service burden, and a rising share of long-term borrowing.
Summary
India’s external debt rose by over 10% to reach $736.3 billion in fiscal 2024–25, nudging the debt-to-GDP ratio to 19.1%. Despite the uptick, a strong buffer of forex reserves—covering over 90% of the debt—and reduced exposure to short-term obligations keep external finances stable.
