India could also be one of many world’s fastest-growing main economies, however international information reveals it continues to lose billions of {dollars} yearly resulting from how worldwide finance is structured.
The World Inequality Report 2026 from World Inequality Lab reveals that growing nations like India pay larger curiosity on borrowings and earn decrease returns on abroad investments, whereas wealthy nations profit from cheaper capital and regular monetary positive aspects.
Poorer and rising economies like India constantly pay extra to the worldwide monetary system than they obtain again, whereas wealthy nations proceed to learn from decrease prices and better returns.
This structural drain on growing economies is equal to lots of of billions of {dollars} yearly that might in any other case fund vital improvement priorities.
GLOBAL GDP TRANSFER THAT HURTS EMERGING ECONOMIES
One of the putting findings within the report is that poorer nations collectively switch round 1% of world GDP yearly to richer nations. This occurs by way of a mixture of larger curiosity funds on debt, revenue repatriation by multinational corporations, and decrease yields on international property held by growing economies.
To place this in context, this annual switch from poorer to richer nations is roughly 3 times bigger than the full quantity of world improvement help flowing in the wrong way. For nations like India, because of this whilst international funding and commerce improve, a gentle move of cash continues to maneuver out of the economic system.
The size of this disaster is changing into more and more acute. Creating nations paid a document $1.4 trillion to service their international debt in 2023, with curiosity prices climbing to a 20-year excessive of $406 billion. This represents a staggering drain on assets that needs to be invested in improvement.
In the meantime, the poorest nations eligible for the World Financial institution’s concessional lending have been hit hardest—they paid a document $96.2 billion to service their debt in 2023, with curiosity prices surging to an all-time excessive of $34.6 billion, 4 occasions the quantity a decade in the past.
For India particularly, the nation’s exterior debt has reached $747.2 billion on the finish of June 2025, having grown by $67.5 billion in only one yr. India pays an estimated $22.5 billion yearly in curiosity obligations on this exterior debt alone.
This huge annual outflow represents assets diverted from colleges, hospitals, and infrastructure that India desperately wants. To contextualise this burden, India’s exterior debt now represents 19.1% of the nation’s GDP, up from 18.5% the earlier yr, indicating an accelerating debt accumulation regardless of robust financial progress.
WHY INDIA PAYS MORE TO BORROW
The worldwide monetary system strongly favours nations that situation reserve currencies, equivalent to the USA, the Eurozone and Japan.
These nations are capable of borrow at very low rates of interest as a result of international traders view their currencies as protected. India doesn’t have this benefit. Because of this, it faces larger borrowing prices in worldwide markets.
The info reveals the magnitude of this drawback. India’s 10-year authorities bond yield stands at 6.61%, considerably larger than the USA (4.20%), Germany (2.85%), Canada (3.42%), and Australia (4.73%). The unfold between Indian bonds and US bonds measures roughly 164 foundation factors (1.64 proportion factors), that means India pays 1.64 proportion factors extra to borrow cash than the world’s richest nation.
Whereas this unfold has narrowed to a 20-year low from historic averages of 250-400 foundation factors, it nonetheless represents a considerable monetary burden.
The influence on business borrowings is especially putting. India’s excellent business borrowings (exterior business borrowings or ECB) reached a record-high of $291.6 billion in March 2025, rising by $41.2 billion or 16.4% year-on-year—the quickest progress charge in latest quarters.
These business borrowings now characterize 39.6% of India’s whole exterior debt and account for 7.5% of GDP, a 14-quarter excessive, indicating growing reliance on costly business credit score. Within the fiscal yr ending March 2025, India accredited gross ECB of $61.2 billion, up from $48.8 billion the earlier yr, as firms and monetary establishments scrambled to borrow internationally at charges they feared would solely rise larger.
Even when India’s macroeconomic indicators enhance, international lenders proceed to demand larger rates of interest in comparison with what wealthy nations pay. Over time, these larger prices translate into billions of {dollars} in additional funds. A World Financial institution evaluation reveals that the curiosity value on exterior borrowing is on common 3 times extra for growing nations than for developed nations.
In sensible phrases, whereas the USA borrowed at charges round 1% throughout latest intervals, least developed nations have been compelled to borrow at charges exceeding 5%, with some nations paying over 8%.
If India may borrow at US charges (4.20%) as an alternative of its precise 10-year charge of 6.61%, it might save roughly $17.3 billion yearly on its $736.3 billion exterior debt, a determine dwarfing the annual budgets of many state governments and representing assets that might in any other case fund vital improvement priorities. The present 2.41 proportion level differential on India’s debt load is actually a structural tax imposed by international monetary structure.
The info reveals that this hole in borrowing prices isn’t pushed by market effectivity alone, however by long-standing international monetary guidelines, credit standing techniques and reserve foreign money dominance that favour superior economies.
The US greenback stays the predominant medium for worldwide transactions, accounting for roughly 60% of world commerce invoicing, and wealthy nations’ currencies dominate central financial institution reserves, with the US greenback sustaining over 60% of world reserves. Regulatory requirements equivalent to Basel III have institutionalised this benefit by boosting demand for protected property, particularly US Treasuries and European sovereign bonds.
LOW RETURNS ON INDIA’S OVERSEAS INVESTMENTS
India additionally earns much less on its abroad investments in comparison with what wealthy nations earn overseas. Superior economies constantly get pleasure from larger returns on international property, whereas rising economies earn decrease yields. This creates a double drawback for India.
The World Inequality Report 2026 paperwork this asymmetry by way of a metric referred to as “extra yield”, the distinction between returns on international property and the prices of international liabilities as a share of nationwide GDP.
BRICS nations, together with India, face a constant monetary burden of round 2.1% of GDP from this asymmetry, that means they operate as web suppliers of capital to wealthier economies at unfavorable phrases. In distinction, the USA maintains a considerable privilege of two.2% of GDP, whereas the Eurozone advantages from roughly 1%, and Japan information the most important profit at 5.9% of GDP.
For India particularly, this 2.1% of GDP burden interprets to roughly $82 billion in annual structural monetary losses—far exceeding the $22.5 billion in exterior debt curiosity funds alone, when different revenue repatriation and monetary move mechanisms are thought of. Because of this yearly, past what India pays in curiosity on its borrowings, one other $60 billion or so flows out by way of dividends, royalties, and revenue repatriation by international firms working in India.
What makes this significantly putting is that the USA, regardless of being the world’s largest web debtor globally, continues to document constructive web international earnings flows resulting from this exorbitant privilege. This demonstrates that the system operates in keeping with institutional energy quite than basic financial rules—rich nations can maintain low-yielding liabilities (bonds) whereas investing overseas in higher-yielding property (equities and FDI), whereas growing nations should do the reverse.
On one facet, India pays extra curiosity on cash borrowed from overseas. On the opposite, it earns much less from investments made outdoors its borders. Over time, this imbalance results in a gentle outflow of earnings, even in years when India information robust financial progress. The structural nature of this drawback implies that financial progress alone can not remedy it with out adjustments to the worldwide monetary system.
GLOBAL FINANCE AND BRICS COUNTRIES
Knowledge within the report reveals that BRICS nations, together with India, face a web monetary burden. Whereas wealthy economies document constructive positive aspects from international finance, BRICS nations constantly expertise destructive outcomes. In easy phrases, wealthy nations earn extra from the worldwide monetary system, whereas nations like India pay extra into it.
The quantified burden is substantial. BRICS nations collectively document a monetary burden of round 2.1% of GDP yearly, a burden that persists yr after yr. For India, with a nominal GDP of roughly $3.9 trillion, this interprets to roughly $82 billion in annual structural monetary losses—far exceeding the $22.5 billion in exterior debt curiosity funds alone, when different revenue repatriation and monetary move mechanisms are thought of.
This sample has remained secure over a long time, suggesting that it’s structural quite than short-term. Historic information reveals that the wealthiest 0.001% of the worldwide inhabitants (roughly 56,000 adults) now management 3 times extra wealth than half of your entire world inhabitants mixed, and wealth inequality is accelerating, with billionaire and centi-millionaire wealth rising at roughly 8% yearly since 1990, almost twice the speed of progress skilled by the underside 50% of the inhabitants.
With out adjustments in international monetary preparations, this imbalance is more likely to proceed and doubtlessly worsen.
The vulnerability is especially acute when inspecting India’s debt composition. India’s exterior debt breaks down as follows: business borrowings ($291.6 billion—39.6% of whole), NRI deposits ($164.7 billion—22.4%), multilateral debt ($80.5 billion—10.9%), short-term debt ($134.5 billion—18.3%), bilateral debt ($39.2 billion—5.3%), IMF debt ($22.1 billion—3.0%), export credit score ($3.1 billion—0.42%), and rupee-denominated debt ($0.8 billion—0.1%).
The focus of economic borrowings at document ranges is especially regarding, as companies and monetary establishments typically face even larger rates of interest than the federal government.
CURRENCY RISK AND REFINANCING BURDEN
A vital vulnerability compounds India’s borrowing drawback: foreign money publicity. Over 54% of India’s exterior debt is denominated in US {dollars}, exposing the nation to foreign money depreciation dangers. The Indian rupee has already weakened by roughly 4% in 2025, considerably growing the price of servicing this debt.
Each 1% depreciation of the rupee provides roughly $3.7 billion to India’s debt servicing prices when measured in rupees, successfully elevating the true borrowing value above the said rate of interest.
Moreover, India’s short-term exterior debt stays elevated at $134.5 billion, with residual maturity obligations reaching an all-time excessive of $303.7 billion. This represents 41.2% of whole exterior debt by residual maturity, indicating a considerable refinancing burden over the subsequent 12 months.
India’s international trade reserves stood at roughly $697.9 billion as of June 2025, masking solely 90.8% of exterior debt—under the psychologically necessary 100% mark for 13 consecutive quarters.
This leaves the nation susceptible to sudden capital outflows, which might pressure the Reserve Financial institution of India to deploy foreign exchange reserves to stabilise the foreign money, additional constraining assets accessible for improvement.
– Ends
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