Last Updated on December 3, 2025 11:39 pm by BIZNAMA NEWS
R. Suryamurthy
India projects stability, but beneath the surface the country is becoming more exposed to the global debt storm engulfing South Asia. The World Bank’s International Debt Report 2024 reveals a worldwide financing squeeze of historic proportions: developing nations paid US$741 billion more in principal and interest than they received between 2022 and 2024 — the largest negative net flow in at least 50 years.
India, unlike its neighbours, has avoided acute distress. But the data shows a slow turn in the wrong direction: rising external liabilities, heavier private-sector foreign borrowing, accelerated interest payments, and a growing role as the region’s de facto financial firefighter.
India’s external debt rose to US$716.5 billion in 2023 — a 4.7% increase — even as the global cost of capital hit multi-decade highs. More importantly, the composition of that debt is shifting in ways that leave the economy more sensitive to global rate cycles.
Private-Sector Exposure: India’s Fastest-Growing Vulnerability
The most striking feature in the report is the surge in private non-guaranteed (PNG) debt — borrowing by Indian corporates without sovereign backing. PNG debt is now the single-largest component of India’s external liabilities, accounting for over half of total debt.
The World Bank data shows:
• PNG debt grew 7–9% in 2023 (depending on category), one of the fastest rates among major LMICs.
• Long-term private-sector inflows remain positive, but repayments have begun to rise sharply in IT services, pharmaceuticals, and energy companies with global operations.
• Exposure to floating-rate foreign debt has increased, amplifying sensitivity to global rate shocks.
For a decade, India’s corporates borrowed cheaply offshore to fund expansion. Now, with global interest rates still elevated, rollover costs are rising at a pace that analysts say is “not yet dangerous but no longer benign.”
Rising Servicing Costs: A Slow Squeeze, Not a Sudden Crisis
India’s interest payments on external debt have risen steadily over the past five years, reaching multi-year highs in 2023.
This reflects global trends:
• On newly contracted public debt worldwide in 2024, countries paid a 24-year-high interest rate to official creditors.
• To private creditors, the average rate hit a 17-year high.
• Developing economies paid US$415 billion in interest alone last year — funds that could have been used for public investment.
For India, the risk is less about a sudden stop and more about a slow erosion of fiscal space. As global rates stay high, refinancing becomes costlier even for investment-grade borrowers.
India as South Asia’s Stabiliser — With a Growing Bill
The data reveals India’s increasingly uncomfortable role as the region’s stabilising anchor.
India’s SAARC currency swap facility, designed for liquidity support, is fully drawn by:
• Sri Lanka, since its 2022 collapse
• Bhutan, which has seen reserves weaken
• Maldives, intermittently during tourism slumps
These swap lines, typically in the US$200–400 million range, are modest relative to South Asia’s refinancing needs but politically indispensable. India has also supported Bangladesh’s IMF programme indirectly by ensuring multilateral coordination and offering bilateral assurances where required.
This stabiliser role has fiscal implications:
• India’s own external liabilities are growing.
• Regional stress increases contagion risks through trade, remittances, and banking channels.
• India’s foreign exchange reserves—large but not infinite—are being mobilised more actively to prevent spillovers.
In effect, India is insulating the region at a time when its own cost of external borrowing is rising.
Neighbourhood Turbulence: Spillovers India Can’t Ignore
The World Bank report shows the severity of distress next door:
• Pakistan’s external debt rose to US$130.2 billion, with PNG debt jumping to 38% of the total.
• Sri Lanka’s debt climbed to US$37.5 billion, even during restructuring, with interest costs at US$1.7 billion.
• Bangladesh’s debt stock hit US$104.7 billion, with a 15.5% surge in interest payments.
These numbers matter to India because the region’s economic fragility depresses demand for Indian exports, increases informal trade pressures, and heightens financial sector exposure through Indian firms operating regionally.
Domestic Debt: India’s Cushion, and Its Next Soft Spot
India’s domestic debt market remains a major strength — deep, liquid, and predominantly rupee-denominated. But the report flags an emerging challenge seen across LMICs:
• In over half of 86 developing countries, domestic debt is growing faster than external debt.
• Domestic banks are loading up on government bonds at the expense of private-sector credit.
• Short maturities raise refinancing risks and increase fiscal costs.
India fits this pattern. Banks’ holdings of government securities have risen sharply post-pandemic under the “flight to safety” dynamic, crowding out credit to MSMEs even as headline numbers appear stable.
A Development Warning Hidden Inside Debt Numbers
The World Bank is unusually blunt: debt overhang is now showing up in human deprivation.
Among the world’s most heavily indebted economies (where external debt exceeds 200% of exports), the report finds:
• 56% of the population cannot afford a minimum daily diet.
• 18 of these 22 countries are IDA borrowers — in South Asia and Africa.
India is not in this group. But the regional context matters. South Asia is the world’s most nutrition-stressed region. Any deterioration in India’s fiscal headroom or external financing terms reduces the country’s ability to maintain food subsidies, MGNREGA allocations, and social-sector spending that buffer vast vulnerable populations.
The Real Test: India’s Future Borrowing Strategy
The World Bank’s message is clear: countries must resist the temptation to embrace the reopening of global bond markets.
“Policymakers should make the most of the breathing room that exists today to put their fiscal houses in order — instead of rushing back into external debt markets,”
warned Indermit Gill, the World Bank’s Chief Economist.
For India, with a rising stock of private external debt, increasing interest bills, a growing role as the region’s stabiliser, and a global environment of structurally higher rates, the next debt cycle will test the credibility of its fiscal strategy, not its solvency. The country is not in crisis. But the data shows it is no longer insulated from one.