India’s external debt saw an increase of $31 billion at $646.79 billion as of the 2023 International Debt Report by World Bank. It underlines how the country became more and more reliant on foreign loans, apart from witnessing a whopping increase in interest payments too. It reports the payment of interest upon India’s external debt also jumped up from $15.08 billion as of 2022 to $22.54 billion for 2023, hence witnessing a staggering rise in the cost to service its foreign debt. 

The trend for the external debt composition in India has been mixed. Long term debt stocks have grown by 7 percent at $498 billion in 2023 whereas short term debt has dropped to $126.32 billion in 2023. Though the total debt is up, the report noted that the report on the percentage of India’s external debt as percentage of its exports stood at 80% whereas debt servicing was around 10% of its exports in 2023. 

The report further indicated that the net inflows of debt for the year stood at $33.42 billion, whereas the net equity inflows were higher at $46.94 billion in 2023.This indicates that foreign investment, especially in equity markets, was quite strong even though the borrowing was increasing. 

India’s external debt has now begun to rise, considering significant changes happening in the global financial landscape amid debt pull-out by FPIs after a consecutive year of inflows. It reflects changing challenges which India faces in its management of its external financial obligations in terms of interest payment burden. 

This is pressing for India, since the amount of its external debt and the interest payments are growing significantly, which underlines increasing fiscal pressures and calls for the sustainable management of external liabilities. Though the external debt of India still remains within manageable proportions with regards to its overall economy size, the increased servicing costs can be an issue to the country’s fiscal health in the context of global financial uncertainties and shifts in capital flows. The report of the World Bank brings home another very important point that debt inflows should be weighed against careful considerations about long-term economic sustainability.