India’s external debt reached INR 747.20 billion as of September 30, 2025, according to the latest release from the Sigmanomics database. This figure exceeds the June 2025 reading of INR 736.30 billion by 1.50%, and is up 9.50% compared to the September 2024 level of INR 682.30 billion. The steady rise in external debt reflects India’s growing integration with global capital markets and its ongoing financing requirements for infrastructure, trade deficits, and corporate borrowing.

Drivers this month

• Increased sovereign and corporate external borrowing to fund infrastructure projects.
• Moderate depreciation of the INR against the USD, raising the local currency value of foreign debt.
• Higher short-term trade credit and working capital loans amid global supply chain adjustments.

Policy pulse

The Reserve Bank of India’s (RBI) cautious monetary tightening has kept inflation near target but increased borrowing costs. Fiscal policy remains focused on deficit reduction, limiting government external borrowing growth. However, private sector external debt has expanded to fill financing gaps.

Market lens

Immediate reaction: The INR/USD spot rate weakened by 0.30% in the first hour post-release, reflecting concerns over rising external liabilities. Sovereign bond yields edged up 5 basis points, signaling modest risk repricing.

External debt is a critical macroeconomic indicator, influencing currency stability, credit ratings, and sovereign risk. India’s external debt-to-GDP ratio currently stands near 20%, slightly above the 18% average of the past three years. This increase is consistent with India’s expanding external financing needs amid robust economic growth averaging 6.50% annually.

Monetary policy & financial conditions

The RBI’s policy rate hikes since early 2024 have raised domestic borrowing costs, encouraging some firms to seek cheaper external financing. However, tighter global financial conditions and rising US Treasury yields have increased rollover risks on short-term external debt.

Fiscal policy & government budget

India’s fiscal deficit target of 5.90% of GDP for FY2025 has constrained sovereign external borrowing. The government’s focus on disinvestment and improved tax collections has helped moderate debt accumulation. Nonetheless, public sector external debt rose 3% QoQ, driven by infrastructure bonds.

Historical comparisons show that the external debt growth rate has accelerated from a 5% YoY increase in 2023 to nearly double that pace in 2025. The quarterly increases have averaged 1.30% over the past year, with the latest quarter slightly above trend at 1.50%. This suggests a gradual but persistent buildup of external liabilities.

Market lens

Immediate reaction: INR/USD depreciated 0.30% post-release, while 10-year government bond yields rose 5 basis points. This reflects market sensitivity to rising external debt amid global tightening.

Looking ahead, India’s external debt trajectory will depend on global interest rates, currency movements, and domestic policy responses. The following scenarios outline potential paths:

Bullish scenario (30% probability)

• Global rates stabilize or decline, easing rollover costs.
• INR strengthens due to robust exports and capital inflows.
• External debt growth slows to 5% YoY by mid-2026.

Base scenario (50% probability)

• Gradual global monetary tightening continues.
• INR remains stable with moderate volatility.
• External debt grows 8-10% YoY, consistent with current trends.

Bearish scenario (20% probability)

• Sharp global rate hikes and USD appreciation.
• INR depreciates sharply, increasing debt servicing costs.
• External debt growth accelerates above 12%, raising risk premiums.

Structural & long-run trends

India’s external debt has steadily increased over the past decade, reflecting deeper global financial integration. The composition has shifted toward longer maturities and more foreign direct investment-related debt, reducing rollover risks. However, rising short-term debt and currency mismatches remain vulnerabilities.

India’s external debt growth in September 2025 signals ongoing external financing needs amid a complex macroeconomic environment. While the rise is moderate, it requires vigilant monitoring given global monetary tightening and geopolitical uncertainties. India’s strong growth fundamentals, prudent fiscal management, and diversified debt profile provide buffers against shocks. Policymakers should continue balancing growth with debt sustainability to maintain investor confidence.

Key Markets Likely to React to External Debt

External debt levels directly influence currency markets, sovereign bond yields, and equity sentiment. The following tradable symbols historically track India’s external debt dynamics:

• NSE.NS – India’s benchmark stock index, sensitive to macroeconomic stability and foreign capital flows.
• USDINR – The INR/USD exchange rate, reflecting currency risk and external debt servicing costs.
• BTCUSD – Bitcoin, as a proxy for risk sentiment and alternative capital flows impacting emerging markets.
• RELIANCE.NS – A major Indian conglomerate with significant external financing exposure.
• EURINR – Euro to INR exchange rate, relevant for trade and debt denominated in euros.

FAQs

What is India’s current external debt level?

India’s external debt stood at INR 747.20 billion as of September 2025, up 1.50% from June 2025.

How does external debt affect India’s economy?

External debt impacts currency stability, borrowing costs, and investor confidence, influencing growth and inflation.

What are the risks of rising external debt?

Risks include currency depreciation, higher debt servicing costs, and vulnerability to global financial shocks.

Key takeaway: India’s external debt growth is moderate but accelerating, requiring balanced policy to sustain macro stability amid global uncertainties.