This change reflects the challenges and evolving dynamics within India’s financial landscape amid a complex global economic environment.
India’s external debt profile has undergone a notable shift over the past decade and a half, with the share of rupee-denominated liabilities rising by 10.6 percentage points.Analysis of the data from the Reserve Bank of India (RBI) and the Department of Economic Affairs (DEA) shows that rupee-denominated debt accounted for 29.4 per cent of India’s external debt at the end of March 2026, compared with 18.8 per cent at the end of March 2011.Rupee debt share easesThe composition of India’s external debt has evolved over the years. Foreign currency-denominated debt declined from 81.2 per cent in FY11 to 70.6 per cent in FY26. Even so, FY26 marked a departure from the recent trend, with the rupee denominated debt slipping 1.7 percentage points over the year.Within rupee-denominated liabilities, foreign portfolio investors’ (FPI) debt investments declined to $72.8 billion in March 2026 from $77.8 billion in March 2025. Balances in non-resident (external) rupee accounts (NR(E)RA) also edged down to $98.6 billion from $100.7 billion. In contrast, non-resident ordinary (NRO) deposits continued to expand, rising to $33.3 billion in FY26 from $31.1 billion in FY25. Smaller categories such as rupee debt related to defence and civilian obligations continued to decline.In FY26, the decline of $5 billion in FPI debt holdings and $2 billion in NR(E)RA balances outweighed the $2.2 billion increase in NRO deposits, leading to a fall in overall rupee denominated liabilities, even as India’s gross external debt increased to $762.7 billion in FY26 from $736.4 billion in FY25.Dollar strengthens its lead in currency mixThe US dollar, however, remained the dominant currency in India’s external debt and further increased its share in FY26. Dollar-denominated liabilities rose to 55.5 per cent of total external debt at the end of March 2026 from 54.2 per cent a year earlier and 51.6 per cent in FY21.In contrast, the rupee’s share declined to 29.4 per cent in FY26 from 31.1 per cent in FY25, and 33.9 per cent in FY21. The share of special drawing rights (SDRs) eased to 4.3 per cent from 4.6 per cent, while the Japanese yen increased to 6.4 per cent in FY26 from 6.2 per cent in FY25. Euro-denominated debt also rose to 3.7 per cent from 3.2 per cent, whereas other currencies remained broadly unchanged at 0.7 per cent of external debt denominations over the year.Although the RBI has managed to contain the overall external debt as a per cent of GDP to a manageable level, the dominance of dollar-denominated liabilities, poses a challenge.Published on July 2, 2026
