Inflation and Monetary Policy Impacts on India's External Debt of $682 Billion

Inflation and Monetary Policy's Role

India's external debt rose to $682.3 billion as of June 2024, reflecting an increase of 2 percent over March 2024 and 8.5 percent over June 2023, according to data from the Reserve Bank. Despite this growth, the external debt to GDP ratio decreased to 18.8 percent, down from 18.9 at the end of March 2024. This decline highlights the effects of inflation and monetary policy on debt management.

Valuation Effects and Debt Composition

• The appreciation of the US dollar relative to the Indian rupee contributed a $3 billion valuation effect this quarter.
• Long-term debt, defined as debt with a maturity over one year, comprised $549.6 billion, an increase of 1.5 percent.
• Short-term debt grew to 19.4 percent of total external debt, an increase from 19.1 percent in March 2024.

Debt Servicing and Trends

At the close of June 2024, debt servicing—both principal repayments and interest—represented 6.6 percent of current receipts, slightly down from 6.7 percent in March 2024. The composition of India's external debt remains heavily dollar-dominated (54.6 percent), followed by rupee (31.2 percent) and yen (5.4 percent).

In summary, ongoing trends in inflation and adjustments to monetary policy through RBI rates affect both the structure and burdens of India’s external debt. Understanding these dynamics is crucial for assessing future monetary strategies.