Total Debt of India: Internal, External, Long-Term and Economic Impact

The total debt in India has emerged as a fundamental economic indicator demonstrating how well the country manages its finances. As of early 2025, the current total debt of India is estimated to be around ₹181.68 trillion (approximately $2.091 trillion), encompassing both internal and external debts. This article delves into the various components of India's total debt, historical trends, and economic implications.

What is the Total Debt of India? 

The total debt of India refers to the cumulative liabilities that the government owes to creditors, including domestic (internal) and foreign (external) borrowings. The total outstanding debt is a vital indicator demonstrating the government's ability to borrow funds and its financial accountability.

India's total national debt reached ₹168.72 trillion in March 2024, before analysts predicted it would increase to ₹181.68 trillion by March 2025. The government continues borrowing money to fund development initiatives and control financial deficits, thus increasing the debt. 

Components of India's Total Debt

The total debt of India consists of two fundamental components.

• Internal Debt: The internal debt segment includes all loans obtained by the country through government bonds, treasury bills, and other financial instruments. In March 2025, India's total internal debt was about ₹166.57 lakh crore.
• External Debt: External Debt represents the amount of foreign loans, which reached ₹53.7 lakh crore in March 2024. India's total external debt has grown continuously and will reach ₹57.4 lakh crore by March 2025.

These components provide essential knowledge about India's funding methods, budget requirements, and infrastructure development. 

Internal Debt by Year

The internal debt has experienced continuous growth throughout the years.

• 2019-2020: ₹83.19 lakh crore
• 2020-2021: ₹102.98 lakh crore
• 2021-2022: ₹119.01 lakh crore
• 2022-2023: ₹135.66 lakh crore
• 2023-2024: ₹151.99 lakh crore

India's rising total internal debt demonstrates government investments to boost economic growth and improve public welfare. 

External Debt by Year

India's external debt has experienced substantial modifications.

External debt has increased because of growing foreign investment and funding for infrastructure development.

Long-Term Debt

Long-term debt consists of financial obligations that need to be paid after one year has passed. According to recent fiscal reports, the Indian economy shows continuous growth in long-term external debt, which reports a year-on-year increase of 9.2%. The extended repayment duration of large-scale projects relies heavily on this segment for financing. 

Factors Contributing to India's Debt

The debt levels in India are increasing because of multiple interrelated factors:

• Infrastructure: The need to develop large-scale infrastructure projects, including national highway development, railway modernisation, and urban infrastructure expansion, drives India's increasing debt levels. The projects need ample initial funding to support economic growth and enhance citizens' quality of life. 
• Social Welfare Programs: The government's dedication to social welfare programs through various schemes significantly increases the national debt. Implementing poverty relief programs together with healthcare programs, education initiatives, and rural development projects ensures both social equity and inclusive growth. These programs demand substantial financial resources, which might force the government to borrow money to fulfil its financial requirements. Social welfare investments and debt management represent a sensitive equilibrium that demands thorough evaluation.
• Fiscal Management: Fiscal management is essential in this process. The government's revenue from taxation and other sources determines its need to borrow money. Economic cycles, tax policy modifications, and international economic conditions influence how much revenue the government receives. The government borrows money from lenders to compensate for revenue shortfalls that create additional debt responsibilities. 
• Exchange Rate: Exchange rate movements and modifications in worldwide interest rates affect how much a country spends to service its external debt obligations. The depreciation of the Indian rupee against foreign currencies raises the expense of debt repayment obligations in foreign currencies and simultaneously increases the cost of new foreign debt. The total debt management in India faces additional challenges because of external market forces.

Impact of Debt on the Indian Economy

Various economic effects stem from India's increasing debt levels. Through strategic borrowing, the economy obtains funding to build crucial infrastructure, resulting in productivity growth, better connectivity, and economic expansion. Government financial investments spur economic growth by generating employment and increasing consumer purchasing power. The strategic use of debt thus plays a significant role in boosting economic development.

Public Finances: Too much debt creates potential hazards for the economy. Public finances suffer from elevated debt levels because interest payments grow, reducing funds available for healthcare, education, research, and development. The government devotes substantial revenue to debt payments, which decreases funds available for developmental initiatives.

Debt-to-GDP Ratio: A rising debt-to-GDP ratio can raise concerns among investors and international financial institutions, potentially leading to a downgrade in credit ratings. The increase in government and private sector borrowing expenses because of lower credit ratings creates obstacles to economic growth. Therefore, it is essential to maintain a prudent debt-to-GDP ratio to ensure fiscal sustainability and investor confidence.

Debt-GDP ratio = (Total Public Debt/GDP) X 100

Investment: High government debt levels reduce available investment opportunities for private businesses. Government borrowing at high levels creates increased interest rates, which increase borrowing costs for companies seeking to invest capital. High government borrowing rates create market conditions that discourage private business expansion while slowing economic development.

The right approach requires governments to deploy debt for profitable investments while upholding sound financial practices to prevent debt-related problems. The government should thoroughly assess borrowing opportunities to determine how debt will produce lasting economic value beyond short-term spending.