India’s external debt increased 10% to $736.3 billion in FY25, with the debt-to-GDP ratio rising to 19.1%, per government data released on June 25, 2025. The rise reflects infrastructure and renewable energy investments, supporting the $5 trillion economy goal by 2027.

India’s external debt grew from $670 billion in FY24 to $736.3 billion in FY25, driven by $100 billion in infrastructure loans and $50 billion for renewable projects. The debt-to-GDP ratio, up from 18.5%, remains below the IMF’s 40% threshold for emerging economies. Commercial borrowings, at 40%, and multilateral loans, at 30%, dominate, with 70% in U.S. dollars.

The 2025 Budget’s $2 billion for renewables and $1 billion for infrastructure align with this debt, funding 108 GW solar and 10 GW hydro capacity. External Commercial Borrowings (ECBs) rose 12% to $294 billion, with 50% for power and transport. The Reserve Bank of India’s $650 billion forex reserves cover 90% of debt, ensuring stability. However, 10% currency depreciation risks $70 billion in repayments.

Challenges include high interest rates, averaging 5%, increasing servicing costs by $10 billion annually. Renewable projects, like Gujarat’s 12 GW solar parks, rely on 80% imported equipment, raising costs by 10%. The Critical Minerals Mission, with $1 billion allocated, aims to localize supply chains. Global benchmarks, like China’s 14% debt-to-GDP ratio, show prudent borrowing, but India’s 20% project delays hinder returns.

Environmental benefits include a 15% emissions drop from renewable investments. Posts on X highlight debt concerns, with some noting economic growth potential. Scaling infrastructure requires $500 billion by 2030 and 50,000 skilled workers, per NITI Aayog.

Conclusion

India’s $736.3 billion external debt in FY25 supports growth but requires careful management. Localizing supply chains and reducing delays are critical for sustainability.

Source: Outlook Business