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India is macroeconomically stable because it has taken very little external leverage over the past eight years. India’s external debt only increased by 39.1% in March 2022 from its level in March 2014.
Over the previous 10 years (March-2004-March-2014), India’s external debt had increased by 296%, leaving the economy much more vulnerable to the “tantrums” of the times. And there had been a decade of even faster increases in foreign debt – a 363% increase between March 1980 and March 1990, which inevitably culminated in a balance of payments crisis in 1991.
The external debt-to-gross domestic product ratio (a measure of a country’s ability to sustain external debt) moderated to just 19.5% in March 22, well below the 35% threshold for concern for a country that can access global capital markets (like India since 1992).
India came closest to the risk threshold in 1994 (33%); the recent peak of 24% reached in March 2014 was still well below the risk threshold.
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