India Debt: Which Country Lends the Most to India, and How is This Debt Repaid?

India Debt: By the end of March 2020, India's total external debt exceeded $500 billion. Let's find out which country lends the most to India.

India Debt: India's external debt is not owed to a single country. Instead, it is spread across various international institutions, foreign banks, and global investors. According to data from the Ministry of Finance, India's total external debt at the end of March 2020 was approximately $558.5 billion. This figure includes external commercial borrowings, NRI deposits, short-term trade credit, and loans from multilateral financial institutions.

Who Lends the Most Money to India?

The largest portion of India's external debt does not come from any single foreign government but from international markets and institutional investors. Foreign banks, global bond markets, and private lenders collectively constitute a significant portion of India's foreign debt.

Multilateral organizations play a major role among institutional lenders. The World Bank and the Asian Development Bank have consistently been among India's largest lenders. During the COVID-19 pandemic, these institutions provided substantial financial assistance. This helped India strengthen its healthcare infrastructure, support the MSME sector, and maintain its education systems.

Assistance Received During the Crisis

Loans from institutions like the World Bank and ADB are typically long-term and offered at low-interest rates. During the pandemic, this funding proved crucial for economic relief and recovery. The funds were directed towards public health systems, emergency welfare programs, small businesses, and post-COVID economic recovery efforts.

Why India Doesn't Depend on One Country

India has deliberately avoided dependence on any single country for its foreign borrowing. A large portion of its external debt comes from diverse sources such as international bond markets, institutional investors, and multilateral agencies. This way, the economy doesn't have to contend with geopolitical pressures, currency shocks, or sudden changes in lending terms from any single country.

How India Repays Its External Debt

India follows a systematic and disciplined approach to repaying its foreign debt. The primary method involves utilizing its foreign exchange reserves, which provide a robust buffer to meet repayment obligations. These reserves help India pay both the principal and interest without destabilizing the economy.

Debt repayment is also planned through annual budget allocations, where the government sets aside funds specifically for interest payments and principal repayments. Export earnings also play a significant role, with foreign currency earned from the export of goods and services being used to meet external liabilities.