CNN Central News & Network–ITDC India Epress/ITDC News Bhopal: India’s external debt reaching a staggering $717.9 billion by December 2024 is not just a statistical development — it is a signal demanding close attention, swift analysis, and strategic response. While the increase in debt may partly reflect India’s ambitions for infrastructure expansion, energy security, and economic modernization, it also raises red flags about the long-term sustainability of such borrowing-led growth.
According to the latest data released by the Ministry of Finance, India’s external debt rose by nearly $40 billion in a single year, a jump that is significant in both absolute and relative terms. The total debt now represents about 18.7% of the country’s GDP, and while this percentage may seem manageable when compared to some global peers, the underlying structure of this debt needs deeper scrutiny.
A major concern is the composition of the debt. Around 31.3% of the total external debt is in the form of commercial borrowings, while 19.4% is non-resident Indian (NRI) deposits. Multilateral and bilateral borrowings — traditionally considered more stable and concessional — form a relatively smaller share. Furthermore, short-term debt (maturing within one year) stands at approximately $134.3 billion. This poses a significant liquidity risk, especially in a global environment marked by high interest rates and geopolitical tensions.
The rupee’s depreciation against the dollar has further inflated the debt burden. What may have seemed like a manageable figure in rupee terms a year ago has now grown considerably due to currency fluctuations. Servicing this debt — repaying both principal and interest — is becoming more expensive, putting pressure on foreign exchange reserves and balance-of-payments stability.
Another emerging challenge is the rising cost of international borrowing. As central banks in advanced economies maintain elevated interest rates to combat inflation, Indian borrowers — both public and private — face higher borrowing costs in global markets. This could potentially crowd out private investment and reduce the fiscal space for developmental spending.
However, it’s important to acknowledge that not all debt is bad. If external debt is being used productively — to finance long-term infrastructure projects, build export capacity, or invest in human capital — it can contribute to economic growth and even help repay the debt in the future. But if it is used for short-term consumption or to cover recurring deficits, it creates a vicious cycle of dependency and vulnerability.
India’s policy response must now be proactive. Strengthening export competitiveness, diversifying trade markets, boosting remittances, and attracting more stable forms of capital inflows such as foreign direct investment (FDI) are critical. At the same time, careful debt management strategies — such as extending maturities, locking in low interest rates where possible, and monitoring external obligations closely — will be key to maintaining macroeconomic stability.
The rising external debt should not be viewed merely as an economic statistic — it is a mirror reflecting the trade-offs India faces between ambition and prudence, between opportunity and risk. For a country with global aspirations and a young, growing population, managing external vulnerabilities while sustaining growth will be one of the defining challenges of this decade.
As we step into the next financial year, the question is not whether India can manage its external debt — it can. The real question is: can it do so wisely, transparently, and sustainably?
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