India’s rising external debt and heavy reliance on discounted Russian oil could test the country’s economic resilience as Washington weighs aggressive new tariffs targeting nations buying Russian energy.
India’s external debt climbed to $736.3 billion by March 2025, a 10% jump from a year ago, according to the Reserve Bank of India’s latest data. While the debt-to-GDP ratio remains moderate at 19.1%, a looming challenge is the debt’s maturity profile: over 41% — roughly $305 billion — is due in the next 12 months.
The debt structure is largely non-governmental, with companies and financial institutions holding about 77% of the total. Short-term debt makes up 18% of total obligations, equivalent to a fifth of India’s foreign exchange reserves.
Meanwhile, the US Senate’s proposed “Sanctioning Russia Act of 2025” aims to slap punitive 500% tariffs on countries importing Russian oil, a move designed to squeeze Moscow over the Ukraine conflict. India, which now buys nearly 40% of its crude from Russia — about 2 million barrels per day — finds itself in the crosshairs.
A full-scale tariff war could hit India’s largest export market hard. According to Citi Research, up to $66 billion worth of Indian exports — about 87% of shipments to the US — could be affected, dealing a blow to core sectors such as IT services, textiles, and pharmaceuticals.
Energy costs would also spike if India is forced to pivot to more expensive US or Middle Eastern crude, raising fuel prices and putting fresh pressure on the trade balance.
For now, India’s forex reserves of $703 billion cover nearly 93% of external debt, providing a buffer for the refinancing cycle ahead. The RBI’s July Financial Stability Report also signals a healthy banking system, with declining bad loans and strong capital adequacy. But any prolonged export disruption or surge in oil import costs could weaken the rupee and push up debt servicing costs.
Analysts say India’s diplomatic overtures — including talks to cut tariffs on $23 billion of US goods — show New Delhi is keen to avoid escalation. Given India’s geopolitical value to Washington, a negotiated exemption remains on the table.
Still, with $305 billion in debt maturing soon, any trade standoff could rattle investors, squeeze reserves and test India’s ability to weather a global storm.
