Key Points:
- Debt Surge: India’s external debt increased by 10.7% to $717.9 billion by December 2024, up from $648.7 billion in December 2023.
- Debt Composition: US dollar-denominated debt accounted for 54.8%, followed by Indian Rupee (30.6%), Japanese Yen (6.1%), SDR (4.7%), and Euro (3%).
- Sectoral Debt: Non-financial corporations held the largest share of external debt at 36.5%, followed by deposit-taking corporations (27.8%) and the central government (22.1%).
- Debt-to-GDP Ratio: The external debt-to-GDP ratio stood at 19.1% by December 2024, slightly up from 19% in September.
- Loans Dominate: Loans made up the largest component of external debt at 33.6%, followed by currency deposits and trade credits.
New Delhi: India’s external debt has surged to $717.9 billion by the end of December 2024, marking a year-on-year increase of 10.7% from $648.7 billion in December 2023, according to the Ministry of Finance’s Quarterly External Debt Report. On a quarterly basis, external debt rose by 0.7%, up from $712.7 billion at the end of September 2024.
Debt Composition and Valuation Effects
The report highlights that US dollar-denominated debt remains the largest component of India’s external debt, accounting for 54.8%. Other major currencies contributing to the debt include:
- Indian Rupee: 30.6%
- Japanese Yen: 6.1%
- Special Drawing Rights (SDR): 4.7%
- Euro: 3%
The valuation effect due to the appreciation of the US dollar against other currencies contributed $12.7 billion to the debt increase during the quarter ending December 2024. Excluding this effect, the actual rise in external debt would have been $17.9 billion quarter-on-quarter.
Sectoral Breakdown
The distribution of external debt across sectors is as follows:
- Non-Financial Corporations: Largest share at 36.5%.
- Deposit-Taking Corporations: Accounted for 27.8%.
- Central Government: Held 22.1%.
- Other Financial Corporations: Represented 8.7%.
Debt Components
Loans continue to dominate India’s external borrowing, comprising 33.6% of total external debt, followed by:
- Currency and Deposits: 23.1%
- Trade Credits and Advances: 18.8%
- Debt Securities: 16.8%
Debt servicing (principal repayments and interest payments) stood at 6.6% of current receipts at December-end, slightly lower than the September-end figure of 6.7%.
Debt-to-GDP Ratio
India’s external debt-to-GDP ratio was recorded at 19.1% as of December 2024, reflecting a marginal increase from September’s ratio of 19%. This ratio indicates that while India’s foreign borrowing is rising, it remains relatively stable compared to global standards.
Implications and Challenges
India’s rising external debt poses several challenges:
- Currency Volatility: With over half of India’s external debt denominated in US dollars, fluctuations in exchange rates could increase repayment costs.
- Sectoral Risks: The growing share of non-government sector debt highlights potential vulnerabilities in corporate borrowing practices.
- Global Economic Uncertainty: The volatile global financial landscape adds pressure on India’s ability to manage its foreign obligations effectively.
While India’s external debt growth reflects its expanding economy and developmental needs, it also underscores the importance of strategic debt management to mitigate risks associated with currency fluctuations and global uncertainties. Policymakers must focus on diversifying borrowing sources, strengthening foreign exchange reserves, and promoting export competitiveness to ensure long-term financial stability amidst rising global challenges.
