Rating upgrades moderate in H1 as India Inc faces multiple headwinds

India's external financial condition saw a slight improvement in the first quarter of fiscal year 2027, despite global challenges, according to Reserve Bank of India data. The country's external debt-to-GDP ratio decreased slightly to 20.8% from 20.9% in the previous quarter. Despite a $15.4 billion rise in debt, the ratio decreased to $778.2 billion at the end of June.

However, the gap between India's international liabilities and assets widened by $220 billion to $204 billion three months prior. The long-term debt with a maturity of over one year increased by $11.2 billion to $624.7 billion. Loans accounted for 34.3% of the external debt, followed by currency and deposits at 22.2%, trade credit and advances at 19.1%, debt securities at 16.5%, and other global currencies at 8.1%.

The US dollar-denominated debt made up 54.8% of India's external liability, followed by rupee-denominated debt at 29.8%. Valuation gains from the US dollar's appreciation against other major currencies amounted to $0.9 billion. The micro-level data revealed that net claims of non-residents from India rose by $16.5 billion to $220.3 billion.

Foreign liabilities of Indian residents also increased due to higher direct investments and other investments compensating for declining portfolio equity investments. India's invisible receipts, including earnings from intangible services, investments, and remittances, increased to $163 billion in the first quarter compared to $144 billion in the previous year. Services trade saw India earning $35.5 billion through exports and paying $18.9 billion in imports.