India's external debt ratio improved to 18.7% of GDP in FY24, the best level in 13 years. The country added $40 billion in debt, but the increase was partially due to currency appreciation. Short-term debt and debt servicing ratios also improved, boosting India's economic outlook and leading to a stable rating from S&P Global Ratings.
In a positive development, India's external debt ratio has improved to the best level in 13 years, declining from 19 percent of GDP in the previous year to 18.7 percent in the fiscal year 2024 (FY24). This significant achievement was reported by the Reserve Bank of India (RBI) in data released on June 25, 2024.
According to the RBI, the country added nearly $40 billion in external debt during this period, taking the total debt to $663.8 billion as of March 2024. The central bank noted that this increase was partially due to the "valuation effect" caused by the appreciation of the US dollar against the Indian rupee and other major currencies, which amounted to $8.7 billion. Excluding this valuation effect, the external debt would have increased by $48.4 billion instead.
Commenting on the debt composition, the RBI stated that the share of short-term debt in total external debt declined from 20.6 percent at the end of March 2023 to 18.5 percent at the end of March 2024. Similarly, the ratio of short-term debt to foreign exchange reserves dropped to 19 percent at the end of March 2024.
The data also revealed that dollar-denominated debt remained the largest component of India's external debt, accounting for 53.8 percent, while around a third was rupee-denominated, and the yen had a 5.8 percent share.
The improvement in India's external debt situation is further reflected in the country's debt servicing, which rose from 5.3 percent in the previous year to 6.7 percent in FY24. Additionally, the foreign exchange to debt ratio improved from 92.7 percent in the previous year to 97.4 percent in FY24.
These positive developments have not gone unnoticed by global rating agencies. S&P Global Ratings recently revised India's outlook upwards to stable, indicating that a further improvement in general government debt will likely lead to a rating upgrade. India is currently rated 'BBB-' by the agency.
This remarkable progress in India's external debt management demonstrates the country's robust economic fundamentals and its commitment to maintaining a sustainable fiscal position. The continued reduction in debt levels and improved debt servicing capacity will further strengthen India's position in the global financial landscape, paving the way for greater investment and economic growth in the years to come.